A Little Bit of History
The 80/20 rule was first introduced by Italian economist Vilfredo Pareto, who, in 1906, observed that 20% of the population controlled 80% of Italy’s land. From there, it was developed by Joseph Juran, a 20th-century figure in the study of management techniques and principles. Jurin took the rule and applied it to many different facets of business and the economy. It is now used to describe almost any type of output in the real world.
The rule states that 80% of outcomes can be attributed to 20% of all causes for a given event.
It applies to all activities in general, and it’s an interesting way of analyzing which of our actions are worth doing. When it comes to business, it can be said that 80% of a company’s income is generated by 20% of its total clients. Paying attention to this can help you decide which of your clients you should be paying more attention to for example.
Why Should You Care About The 80/20 Rule?
- Companies should dissect their revenues and understand who makes up their top 20% of customers to target a similar type of client in their marketing campaigns.
- Furthermore, the top 4% of a customer base accounts for 64% of total sales.
- There are a handful of activities that you can do as a business owner to produce the most results.
- For instance, there is usually an essential 20 percent of elements within an individual blog article that have the most dramatic effect on results.
- Find the products or services you provide that generate the most income (the 20 percent) and drop the rest (the 80 percent) to maximize profit and reduce wasted time.
- Invest your time working on tasks that can improve your business significantly and leave the functions that are outside your skills to other people.
- Reward the best employees well. Drop the bad clients and focus on upselling and improving service to the best clients.