Why I should care about a dead Italian?

So why should you and your business care about an Italian economist who lived from 1848-1923? His name is Vilfredo Federico Damaso Pareto. He was an economist who first proposed the concept of the rule of 80/20. His initial observation was that 80% of the property in Italy was owned by 20% of the population. Later another management consultant Joseph Juan expanded the concept of 80/20 to many other business situations and his writings credited Pareto leading to the general economic rule of 80/20 or the Pareto Principle.

Obviously 80/20 are not hard fast numbers, but I have been involved with enough different industries and business situations to tell you that the rule really does work. In your business, approximately 80% of your revenue comes from approximately 20% of your customers. Approximately 20% of your products make up about 80% of the profit in your company. If you are a non-profit organization 80% of your financial support comes from 20% of your donors. If you like to cook, 80% of your food preparation is done using only 20% of the pots, pans and utensils in the kitchen. Go into your closet and you wear 20% of your clothes 80% of the time.

It all sounds very simple, but there really is some complexity to applying the principle to improve your business. What I can tell you is you can have a dramatic impact on the profitability of your business by properly applying the Pareto Principle to your business. I worked with a non-profit back in the mid 80's and we increased donations by 10% while reducing the cost of fund raising. More recently I worked with a company where over a 2 year period we eliminated over 200 customers and almost 2,000 SKU's. During that same time period sales increased 15% and income increased 100%! Tell me your company would not want a 100% increase in income.

Want to know more about 80/20 this is a good easy read 80/20 Principle
Want to read more writings from Pareto, check here
Want help implementing Pareto in your business? Hire Me!