The 80/20 Rule and How It Can Help Your Business
By: Erica Spelman
Tags: Entrepreneurship, Personal Development, Time Management, Self Improvement, Business

More commonly known as the 80/20 rule, the Pareto Principle has widespread applications across many different fields such as mathematics, economics, health, and business. So what exactly is it and how can it benefit your organization?

Several variations of the 80/20 rule apply to multiple business areas ranging from project management and quality control to time management and leadership. The 80/20 rule states that 20% of our efforts affect 80% of the results.

In 1906, Italian economist Vilfredo Pareto observed that 80% of land in Italy was owned by just 20% of the population. In 1937, American engineer Dr. Joseph Juran, recognized for his research in quality management, identified this ratio in other areas of interest and named it the Pareto Principle. Seeing universal applications, he first described it as “the vital few and trivial many” but later changed it to “the vital few and the useful many” so as not to exclude opportunities for improvement within the “many” — an important distinction acknowledging that no improvement in any aspect should ever be considered trivial.

Business Applications

This pattern of distribution can be found in the business world in numerous ways. For example:

20% of your customers account for 80% of your sales,

20% of inventory items take up 80% of warehouse space,

20% of vendors make up 80% of your sales,

20% of your sales force is responsible for 80% of your sales,

20% of bugs cause 80% of your site’s problems,

20% of defects affect 80% of inventory.

Analyzing this ratio within your business can help you identify where best to spend your time, resources, marketing, research, and hiring efforts — not to mention highlight problem areas and opportunities for immediate improvement.

Photo by Laureen Missaire on Unsplash

Leadership

So how do you use the 80/20 rule as a manager? Spending 20% of your time with your team simply socializaing and getting to know each other can build trust and unity within your team in a way where both leaders and team members learn from each other. Investing time in your team is what makes the difference between a mentor and a manager.

Adopting an Innovative Mindset

The 80/20 rule can also apply to organization-wide learning. For example, setting aside time for teams and individuals to work on passion projects or participate in sprints or hackathons can spark creativity, foster an open mindset, and encourage an entrepeunrial spirit.

Time Management

When you think of your typical work day, how much of that time do you feel is truly productive? If applying the 80/20 rule, then roughly 1.5 hours out of an 8-hour work day are the most impactful, which can be both insightful and disheartening! But when one adds up all the time spent on meetings, calls, emails, coffee breaks, lunches, and distractions, it doesn’t seem so far fetched, after all.

Using the 80/20 rule can help you prioritize the most important tasks for the day and then set aside a concentrated block of time to complete them. Limit distractions by turning off notifications, ignoring your inbox, and setting apart time without meetings. Focusing that time on your most pressing projects can make a world of difference to your level of productivity and sense of accomplishment each day.

Whether it’s prioritizing project management, building teamwork, or promoting creativity, the 80/20 rule has practical applications for every part of an organization.