The Power of the Pareto Principle (Part One)

According to a recent Harris poll, more than half of 23,000 people surveyed indicated that were frustrated and dissatisfied with the small amount of work they actually accomplished each week. (The other people surveyed were probably so distracted that they misunderstood the question or accidentally checked the wrong box). If you often feel frustrated by your lack of productivity, you need to start using the Pareto principle.

This powerful principle, which is also known as the 80/20 rule, was discovered by Vilfredo Pareto, an Italian economist. Mr. Pareto observed that 80% of a nation’s wealth is typically in the hands of 20% of the population. No matter what type of taxation system was used by a country, 20% of the people controlled 80% of the wealth.

Although Mr. Pareto made his observations over a hundred years ago, the 80/20 principle applies today. For example, according to a 2004 Survey of Consumer Finances, 20 percent of America’s population has 84.6 percent of the wealth. This leaves 15.4% of the wealth for the remaining 80 percent of the population.

There have been many other applications of the 80/20 rule. For example, 20 percent of customers will provide most companies with 80 percent of their sales. Life Insurance companies have observed that 20 percent of their sales people bring in 80 percent of the company’s revenue. The other 80 percent of their sales force only brings in 20 percent of the company’s revenue.

The 80/20 rule also states that you typically receive 80 percent of your benefit (or reward) by completing only 20 percent of your tasks. In other words, roughly 20 percent of your daily activities are responsible for 80 percent of your “desired outcomes” such as success, income and personal happiness.

For example, if you had a “to-do” list with ten tasks, two of those tasks would typically be high payoff/high reward activities. If you only completed those two “high payoff” tasks and didn’t complete the other eight, you would still get 80 percent of the results you were seeking (your payoff/reward). However, if you completed the eight “low payoff” activities without completing the two “high payoff” activities, you would only receive 20 percent of your reward.

Have you ever applied the 80/20 rule? Did it help you to get more done? Leave a comment and share your experience.