How useful would it be for you to know exactly where your time was best spent? How would it improve your productivity if you could quickly and reliably determine which customers were most lucrative for your business, and which ones were costing far more than they were worth holding on to? Fortunately, the ability to determine exactly that was established more than 100 years ago.
Back at the dawn of the century, an Italian economist realized that he could mathematically calculate the fact that 20% of Italian citizens owned about 80% of the nation’s wealth. This equation proved to be valuable in analyzing far more than just the wealth distribution in Renaissance Revival-era Italy. In fact, the so-called “Pareto Principle” has been (and continues to be) used as an effective method of measuring distributions of wealth, effort, sales productivity, and countless other applications. This is because there is a fundamental truth — what some might call a philosophy — associated with the 80/20 equation discovered by Vilfredo Pareto.
At its core, the philosophy of the Pareto Analysis is based on an understanding of the fact that a relatively small percentage of input is responsible for a significant amount of the output. More specifically, that 80% of output can be attributed to 20% of input. This, of course, works when analyzing wealth distribution (as it was originally used by Pareto), but it also works in a number of other applications as well.
Perhaps the most compelling application — at least in our entrepreneurial and capitalistic society — is the use of the Pareto Analysis when assessing productivity. More specifically, a business can usually attribute about 80% of their profit (or sales volume) to about 20% of customers. On the other hand, about 20% of customers often take up about 80% of available bandwidth.
The Pareto Analysis can be applied to any number of things:
In order to use Pareto Analysis effectively, you must first be willing to accept a couple of facts: The first is the fact that some of your clients or customers may not be worth your time. The second thing you must be willing to accept is all work is not equal.
Try using the Pareto Analysis yourself, and see if you can make your day more productive by eliminating the time consuming, unproductive tasks and focusing on the high-yield tasks.