80/20 Rule Of Thumb

According to Wikipedia, the 80/20 Rule or Pareto principle “states that, for many events, 80% of the effects come from 20% of the causes”.

The 80 and the 20 are not exact. The 80/20 Rule is what’s commonly known as a rule of thumb.

More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:

* 20% of the input creates 80% of the result
* 20% of the workers produce 80% of the result
* 20% of the customers create 80% of the revenue
* 20% of the bugs cause 80% of the crashes
* 20% of the features cause 80% of the usage
* And on and on…

But be careful when using this idea! First, there’s a common misconception that the numbers 20 and 80 must add to 100 — they don’t!

20% of the workers could create 10% of the result. Or 50%. Or 80%. Or 99%, or even 100%. Think about it — in a group of 100 workers, 20 could do all the work while the other 80 goof off. In that case, 20% of the workers did 100% of the work. Remember that the 80/20 rule is a rough guide about typical distributions.

So Why Is This Pareto Principle Useful?

The Pareto Principle helps you realize that the majority of results come from a minority of inputs. Knowing this, if…

20% of workers contribute 80% of results: Focus on rewarding these employees.
20% of bugs contribute 80% of crashes: Focus on fixing these bugs first.
20% of customers contribute 80% of revenue: Focus on satisfying these customers.

The examples go on. The point is to realize that you can often focus your effort on the 20% that makes a difference, instead of the 80% that doesn’t add much.

Practical Applications Of 80/20 Rule Of Thumb

Some examples about the allocation of time, effort, and resources are the following:

* Costs. To reduce costs, identify which 20% are using 80% of the resources. If members of this segment are not top profit generators, consider charging them for the resources they consume or shift services away from this sector.

* Personal Productivity. To maximize personal productivity, realize that 80% of one's time is spent on the trivial many activities. Analyze and identify which activities produce the most value to your company and then shift your focus so that you concentrate on the vital few (20%). What do you do with those that are left over? Either delegate them or discontinue doing them.

* Product Mix. Marketers and advertisers engage in market segmentation by identifying groups of people/organization with shared characteristics and then aggregate these groups into larger market segments. This segmentation may be behavioristic, demographic, geographic, or psychographic. The rule predicts that 80% of the profits are derived from 20% of the segments. If costs are allocated to segments and the segments are then rank-ordered by profit, overall profits will increase if the less profitable segments are discontinued, sold, or traded.

* Profits. To increase profits, focus attention on the vital few (top 20%) by first identifying and ranking customers in order of profits and then focusing sales activities on them. The 80-20 Rule predicts that 20% of the customers generate 80% of the revenues, and 20% yield 80% of the profits, but these two groups are not necessarily the same 20%.

Some of the 80/20 Rules that you may find interesting:

• Approximately 80% of all income is paid to 20% of all people.
• 80% of all productivity comes from the efforts of 20% of all people. These 20% of people are the ones who have a good measure of internal motivation, have a high level of personal productivity, consistently invest in personal development, commit to their goals and focus their efforts and leverage their money and their time.
• Needless to say 80% of all people follow the 20% of all people who lead them.
• While 80% of people spend their disposable income on what Robert Kiyosaki points to as worthless items which they think are assets, the 20% live frugally and spend as much as possible on income producing investments that pay them over and over again.
• While 80% of people trade their time for money, the 20% use their time to develop businesses that leverage the time of the 80% – employees — and also outsource and sub-contract to other businesses in order to gain even more leverage.
• The 80% of people tend to take it easy or look for get rich schemes and shortcuts to success. They follow the path of least resistance, and they settle for much less than they really want.
• 80% of your work is done by 20% of your workers.
• 80% of all blogging is done by 20% of all bloggers.
• 80% of all blog comments are made by 20% of all blog readers.
• 80% of all traffic goes to 20% of all websites.
• 80% of all spam is generated by 20% of all spammers.
• 80% of a manager's interruptions come from the same 20% of the people
• 80% of a problem can be solved by identifying the correct 20% of the issues
• 80% of advertising results come from 20% of your campaign.
• 80% of an equipment budget comes from 20% of the items
• 80% of an instructor's time is taken up by 20% of the students
• 80% of benefit comes from the first 20% of effort
• 80% of customer complains are about the same 20% of your projects, products, services.
• 80% of network traffic stays within the LAN while 20% needs to cross the backbone.
• 80% of our personal telephone calls are to 20% of the people in our address book
• 80% of our shipments utilize 20% of your inventory.
• 80% of sales time is spent on 20% of the customers, who may not be the profitable 20%
• 80% of the decisions made in meetings come from 20% of the meeting time
• 80% of the outfits we wear come from 20% of the clothes in our closets and drawers
• 80% of the traffic in town travels over 20% of the roads
• 80% of what we produce is generated during 20% of our working hours
• 80% of your annual sales come from 20% of your sales force
• 80% of your future business comes from 20% of your customers
• 80% of your growth comes from 20% of your products
• 80% of your innovation comes from 20% of your employees or customers
• 80% of your profits come from 20% of your customers
• 80% of your staff headaches come from 20% of our employees
• 80% of your success comes from 20% of your efforts
• 80% of your website traffic comes from 20% of your pages

Are you in the 80% or the 20%?

If you’re in the 80%, ask yourself what shift in thinking could transform you into one of the 20%.

Nobody however is perfect. We all have bad days. Yet, the 20% group prioritizes and moves forward with much greater focus and consistency than the 80% group.

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