JamieHosmer.com

The Pareto Principle, sometimes called the 80/20 rule, proposes that in any given situation it will be 20% of a certain input will produce 80% of the total output, or production. For example, 20% of the workers in a given job are going to produce 80% of the actual production. The remaining 80% are not productive. This can be applied to many situations, not just workforces, but nature as well….20% of the seed produces 80% of the harvest; or 20% of your customers buy 80% of the products.

The percentages are not always 80/20, they could be 90/10, or 70/30, but there is always an unevenness in the distribution. The ratio can, and does change. But understanding this principle can help in understanding where to put our attention. For example, let’s say you run a business selling light bulbs. You notice that 20% of your customers are repeat buyers. They routinely purchase your stock, they don’t complain, they pay on time, they are your model customer. They also happen to account for 80% of your business.

On the other hand, 80% of your customers don’t actually buy much, they return their merchandise time and time again, they take up more of your time because they are constantly complaining, calling, emailing, etc. ANd on top of this, they are only adding 20% to your profits. If you see that this is the case you may want to get rid of these customers, and find more like the 20% that are making your life easier. After all, most of your business is coming from them anyways, so you can afford to lose the ones that are only contributing 20%.

This is a simplistic example, but it is a real example. Check out these great articles on Pareto’s Principle.

First, from www.betterexplained.com, and then check out how the 80/20 rule helps us to be more effective at www.pinnacle.com.

And just a side note, the Pareto Principle was “discovered” by an Italian economist by the name of Vilfredo Pareto, who in the early 1900′s saw that the distribution of wealth in his country was, you guessed it, uneven in its distribution. In other words, 20% of the population controlled roughly 80% of the wealth. Interesting stuff to say the least.

Hey, I wonder if 20% of my diet produces 80% of my health? Or 20% of my yoga class is producing most of the results? Can I rest for the remainder of the class? Hmmmm…I have to think about that one.

To your health and happiness,

Jamie