Are you leveraging the Pareto Principle in your small business?

The Pareto Principle states that for many outcomes, roughly 80% of consequences come from 20% of causes.

What is the pareto principle

What is the pareto principle

I first heard about the Pareto Principle — also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity –at business school, I realized immediately that all the amazing leaders I’d worked with not only knew the principle but integrated the Pareto principle into their business systems.

Walter Frank, a real estate mogul I worked for knew top sales representatives brought in the lion’s share of the company’s revenue, so he kept track of his top 10, celebrated them with annual awards nights, listed them on top 10 lists, and recognized them in the company newsletter and newspapers.

Years later I hired a part-time comptroller —  Kelly Melanson — to help me grow my digital marketing agency. After a quick review of our revenue streams, she identified labour as our number one expense and suggested time tracking and a class system. I remember telling her at the time that my employers were hard workers and very productive, but the systems we put in place to track/report on productivity boosted ROI by 200% in our first year. Of course, we focussed on improving efficiencies with the least productive employees first.

The Pareto Principle is used far and wide by smart leaders who understand it’s the smartest way to maximize the amount of impact, with the least amount of work.  For example, Microsoft noted that by fixing the top 20% of the most-reported bugs, 80% of the related errors and crashes in a given system would be eliminated.

Want to improve your business?  The Pareto Principle allows you to identify areas of your business which need improvement and makes it easier for you to focus on those that create the maximum amount of impact, with the least amount of work.