How to Use the 80/20 Rule to Grow Your Business

Pareto's 80-20 rule
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🖊 This article was last updated on June 21, 2019

What if there was a proven way to boost your productivity and revenue? Imagine getting better results in less time and no more wasted time and useless activities that lead nowhere. If that’s what you want, you should definitely start implementing the 80/20 rule. This concept is fundamental to every entrepreneur – and every other individual too!

Also known as the Pareto principle, the 80/20 rule was developed in 1896. Yet, it’s more popular than ever now (in no small part, thanks to Tim Ferriss’s best-selling 4-hour work-week). If used right, it can dramatically increase your performance and reduce wasted time. Let’s see how it works and how to apply it in business:

Understanding the Pareto Principle

Back in the late 1800s, Vilfredo Pareto, an Italian economist, noticed that only 20 percent of the pea pods in his garden produced 80 percent of the peas. (And as a logical result, the other 80 percent of pea pods only produced 20 percent of the peas). This imbalance struck him and he started doing research on other areas as well.

You don't often hear business advice that starts with peas...
You don’t often hear business advice that starts with peas…

The first “real-world” evidence he found, was that 80 percent of his country’s wealth belonged to only 20 percent of the population. After researching this theory more, he came up with several interesting findings.

It appears that in general, a whopping 80 percent of results come from 20 percent of the causes. In business, for instance, 80 percent of sales come from 20 percent of customers. Basically, if we focus on the 80 percent of our work that only produces 20 percent of the results, that is pretty much pointless. It’s that 20 percent of our work that matters the most.

Over the years, this concept has been subject to extensive research. It’s widely used in entrepreneurship, economics, marketing, management, and even sports. Anyone can use the 80/20 “rule” to better manage his time and focus on the things that really matter.

As a side-note: this is of course not a hard “rule” and not always exactly 80/20 either, sometimes it’s 70/30, 90/10 or even 90/30. But what is always the case, is that there is a disproportionate scale.

As an entrepreneur, you need to determine where your 20 percent lies – and then focus your efforts in that direction. Here are some examples of the 80/20 rule so you can have a better idea of how it works:

  • 80 percent of profits come from 20 percent of your clients
  • 80 percent of sales come from 20 percent of your sales team or sales effort
  • 80 percent of sales come from roughly 20 percent of advertising
  • 80 percent of social media share come from 20 percent of updates
  • 80 percent of website traffic comes from 20 percent of the keywords used
  • 80 percent of your work results come from 20 percent of your time
  • 80 percent of a company’s revenue comes from 20 percent of its employees
  • 80 percent of sales come from roughly 20 percent of your affiliates
  • 75 percent of NBA championships are won by 20 percent of the teams

There are countless examples that we can apply the Pareto Principle to in our personal and professional lives. You can even use this concept for setting goals, losing weight, or living healthier. For instance:

  • 80 percent of our gains come from 20 percent of your workout efforts
  • 80 percent of your weight loss comes from 20 percent of your diet
  • 80 percent of your bad health comes from 20 percent of your habits
  • 80 percent of muscle growth comes from 20 percent of exercises

As you see, the Pareto Principle applies to almost every aspect of our lives. Therefore, you can use this rule to identify and determine which factors are most important and require the most effort in your business. This will skyrocket your productivity and free up your time.

No More Shiny Object Syndrome

Most entrepreneurs get overly excited about new projects and ideas. They quit or postpone their tasks at hand, and start chasing new ventures. This tendency to lose your focus and become easily distracted is known as the shiny object syndrome.

While there’s nothing wrong about dreaming big, it can hurt your productivity and work performance if you jump from one task or opportunity to another. Like it or not, you cannot do a million things at once and expect to be successful. You first need to finish what you’ve started and then try something new – if that’s what you need.

Let’s take a look at kids, for instance. Whenever they receive a new toy or see one on store shelves, they get excited. Soon after that toy ends up in their hands, however, they lose their interest and start chasing the next thing.

We recognize this childish behavior easily in children, but that’s actually what most entrepreneurs also do without even realizing it. They’re juggling all sorts of marketing strategies and lose their interest before getting results. Or they keep chasing new clients instead of focusing on the ones they already have. Over time, this habit can hurt their business – and their revenue. Plus, their reputation suffers too because they fail to fulfill their promise to customers and business partners.

The 80/20 rule is your best antidote for the shiny object syndrome. Once you start to apply this rule, you’ll focus better on the tasks at hand. Furthermore, you’re going to dedicate your time to the things that really make a difference. This will lead to higher project completion rates, happier customers, and greater revenue. Not to mention that you’ll have more time for yourself!

The Pareto Principle in Action

Now that you know how the 80/20 rule works, you might wonder how to use it in your business and everyday life. It’s not that difficult – it just takes some practice. What you need to do is to focus and think strategically.

Remember, 80 percent of your achievements come from 20 percent of your efforts. Therefore, you need to identify which efforts will yield the best outcome – and stop wasting time on those that produce little or no results.

First, get specific about what you want. Is it more sales, increased brand awareness, or happier clients? Research your industry and the market trends. Define and identify your ideal customers – and then put in time and effort to meet their requirements.

Focus on the clients that could benefit most from your services and fit with your business model. They will bring you 80 percent of your income but only represent 20 percent of all customers who purchase your products or services. Your goal should be to attract more of these people and turn them into long-term customers.

Always focus on your customer and how your products benefit them
Always focus on your customer and how your products benefit them

Next, make a list of activities that produce the most results. Highlight the best-performing ones and focus 80 percent of your efforts in that direction. Fix or discontinue problematic services or tasks that are draining your time and energy. Prioritize your most important projects instead of trying to do the impossible.

With these things in mind, set realistic goals for your business and rethink your priorities. It’s much easier to retain existing clients than attract new ones. Focus on what you already have and make the most out of it.

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