Why is Pareto’s Principle so Important?

If you are doing something on personal development, you’ll sooner or later become familiar with Pareto’s law. Vilfredo Pareto (1848- 1923) was an Italian industrialist, economist and philosopher, who discovered a pattern which defines income distribution and several other aspects of economics. After extensive research he found out that 80 percent of wealth belongs to 20 percent of population. He also realized that above mentioned law holds also for many other things in nature and society and that 80:20 rule in many ways defines our world.

Is 80:20 rule also true for consumption?

Absolutely. Just look to your wardrobe. I assume that you use 20 percent of your clothes for the 80 percent of your time. Could you imagine how much you would save if you could move the ratio to 60:40.

Does the Pareto law apply to the business?

Of course and on many different levels. In most cases applies for:

Personnel efficacy: 20 percent of the sales personnel in the company usually creates 80 percent of income.
Product variety: 20 percent of products/services usually create 80 percent of income.
Income: 20 percent of costumers usually create 80 percent of income.

These are only some examples, but Pareto’s law could be precepted in many areas. Still, just to adjust to the Pareto’s law would be fatal for most businesses since customers love to choose between at least 10 products and you can’t afford to sell only the most sold ones. It’s also wrong to concentrate solely on top 20 percent of costumers. It would be business suicide. Still, you should use more time and effort on that part of the customers, personnel and products, from which you get the most revenue. If you can do it, you can aim very high with your business.