The 80-20 rule, also called as the Pareto principle, is based on the fact that 80% of a problem is caused by 20% of the causes. Joseph Juran studied this very basic concept and built his very successful theory on Quality Control and Management.
While this is a statistical concept, it has been used in various fields including sales. As a thumb rule, “80% of the sales come from 20% of the clients”. My own personal experience has been the same. 90% of my clients have actually come from one single source of referral. So in my case, as of now, the percentage is more like 90-10.
Why this percentage matters for entrepreneurs?
In my opinion, an entrepreneur has to manage various aspects of a business on a daily basis. The areas a business owner has to deal with are Sales, Finance, Marketing, Operations, Law, Business Management and Human Resources. These are just to name a few! It really helps when you apply the 80/20 rule here. What are the 20% of activities that are generating 80% of the revenue? It really helps when you analyse your business this way and focus on those activities. I am learning this every day and I am more convinced that a great deal of business performance improvement can occur when you look at 20% of the critical areas.
In your area of function, how does 80/20 rule play out?