Increase Productivity: How to Apply the 80/20 Rule (a.k.a the Pareto Principle)
November 24, 2015
What if I told you a mindset from 1906 could help you increase productivity in 2015? I’m talking about the Pareto Principle – more commonly known as the 80/20 rule.
This principle has been around for longer than the automobile and has influenced countless aspects of our modern society. This statistic-based principle is so eerily relevant that it applies to building a business 11 decades after it was discovered.
The 80/20 rule can be applied to the core aspects of your business to enhance growth by streamlining efficiency through analyzing data, eliminating redundancy and reducing other waste.
An Overview of the Pareto Principle
In 1906, the discovered that 80% of Italian land was owned by 20% of the population. As an isolated conclusion it’s an interesting statistic, but it was soon observed that this 80% to 20% distribution is alarmingly frequent.
The mindset has seemingly endless applications. For example, 20% of your invested time may produce 80% of your meaningful results. Conversely, 80% of your customer service inquiries may be created by 20% of your customers.
Identifying this pattern allows business owners to examine relevant statistics and maximize practices that work while eliminating ineffective and lower impact ones.
1. Customer Service: Identify Products Causing the Majority of Complaints
Your line of products or services was created to service different client’s needs. Which services are failing to adequately address their needs?
Pareto Principle Application: 80% of your complaints come from 20% of your services.
Tracking poor reviews and negative feedback from clients is the key to applying the Pareto Principle effectively. You need to know, at the bare minimum, which product the client is calling in about. Discovering more is essential: the nature of the issue, if it resulted in a return and if the account manager handled it effectively.
Things like tracking and monitoring tools help you gather this type of information. Once you get this data, it’s easy to understand which 20% of your services are problematic.
Then it’s time to make a decision: will you improve them or cut them?
2. Client Management: Find Your Niche Clients Who Generate the Most Revenue
If you were a Wall Street stock broker in the 80’s, you’d call them “whales”. The Pareto Principle helps you hunt for your own niche clients and use them to power your business.
Pareto Principle Application: 80% of your revenue comes from 20% of your clients.
Understanding the statistics at play with this application is not terribly complex. You likely already understand how much money each client is generating for your business. But – do you know how those numbers relate to each other?
I know I’ve had a hard time with that in the past. Thankfully, this principle helps me out.
Rank all of your clients based on how much revenue they generate. Does the top 20% add up to 80% of your total revenue? Probably pretty close. And that’s when it’s time to start schmoozing:
Intentionally put forth the effort to thoroughly delight your clients. Write them a note, send them an inexpensive personal gift or give them random discounts after a project.
3. Productivity: Remove Distractions Hindering Productivity the Most
Productivity requires focus, goal oriented thinking and superb task management skills.
And if productivity had an arch enemy, its name would be Distractions. You’ve got to defeat it if you want to conquer the world.
Pareto Principle Application: 80% of your distractions comes from 20% of sources.
Quantifying distractions is a strange goal, but it can be done. You’ll need to use project and time management tools that improve your understanding of how your time is spent.
Over time, you’ll start to see what pulls you away from the task that should be completed. It could be something silly like Facebook or catching up on Hollywood Scandals while you’re at work. Or, it could be a legitimate hinderance, like getting bombarded with emails all day from clients. After you can identify what the major sources of distractions the more likely you’ll be to catch yourself next time this distraction strikes.
4. Sales: Invest More in Profitable Sales Efforts
Here’s the big one – sales. The success (or failure) of your business hinges on your ability to gain leads and convert them into sales. But as a freelancer or small business owner, it’s hard to find time to spend solely on sales.
Looks like it’s Pareto to save the day again…
Pareto Principle Application: 80% of your sales comes from 20% of your efforts.
I certainly hope that you’re already tracking some key sales and revenue metrics. If not, it’s time to start. You need to understand which efforts put forth by you and your organization are generating the most of your income.
Forming a correlation between efforts and sales will require, well, some effort. You’ll need to retrace every sale (until you have the right systems in order) back to the effort that created it. Was it a cold call? A referral? A new customer service practice? A sales person out on a call? A new product line that picked up steam online?
Yes, it’s difficult, but what you discover has the potential to explode your business.
Not only can you boost the 20% of efforts producing the most revenue, you can streamline or eliminate the remaining 80% of your efforts (bringing us back to productivity).
5. Marketing: Optimize Performance by Making Your Best Efforts Better
Marketing is what brings in those hot new leads that your business requires. Can you guess how Pareto is going to rock your marketing world?
Pareto Principle Application: 80% of your leads comes from 20% of your website forms.
Many businesses have multiple website forms, such as an email opt in form, content upgrades and any other form that’s created to gather customer data.
Modern tools allow you to easily see the conversion ratios of each area. Polish well performing conversion areas by employing Kissmetrics .
Time to Thank Italy
When you woke up today, did you think you’d discover how Italian wealth inequality in 1906 would end up giving you powerful ways grow your business?
These applications are not one-shot fixes, but a part of your daily workflow. Regularly revisit these applications and keep enhancing your growth.
Have you noticed the 80/20 rule anywhere else in your life? What about anywhere else in your business?
about the author
Chelsei Henderson is a content marketing consultant helping freelancers and entrepreneurs build successful companies in the digital world.