The Pareto Principle

byrcharinhp99

3.6K followers

2 years ago

Disclaimer:

This post is about the analytical and business side of affiliate marketing. Many of us are not at this level yet, so there's no need for trepidations. You are getting closer and closer to your destination every day. However, the seasoned, established entrepreneurs probably relate much better to these rules, more so than us newbies. At any rate, I hope this post provides you with food for thought, and relevant business-related information at least.

What's the 80/20 Rule All About?

When you get to work in the morning, what's the first thing you do? Most people get their morning caffeine fix, check their emails, and figure out what tasks need to get done that day. But how do you decide what's most important? One helpful technique is called the Pareto Principle or 80/20 rule. This can help you pick out and prioritize the stuff that will have the biggest impact so you can get more done.

The Core Idea

The 80/20 rule says that about 80% of results come from 20% of causes. In other words, a small number of things lead to a whole lotta outcomes. This is useful to know because it helps you focus on the few really important things that will create the most change.

Where It Comes From

The 80/20 rule was thought up in 1896 by an Italian economist named Vilfredo Pareto. Pareto noticed some patterns, like how 80% of land in Italy was owned by 20% of the people. He also saw it in his garden - 20% of the plants made 80% of the fruit. We now know this relationship shows up all over the place.

You may also hear 80/20 rule called:

• The Pareto Principle
• The Law of the Vital Few
• Principle of Factor Sparsity

It's not an official math equation, but more of a general phenomenon seen in business, economics, time management, sports, and more.

Some Examples:

• 20% of a plant makes 80% of the fruit
• 80% of a company's profits come from 20% of customers
• 20% of players score 80% of the points

How To Use It

The 80/20 rule works for almost every industry, but it's especially helpful in business and economics. It points out where you can focus your effort to get the most back.

The idea is that 80% of outcomes come from 20% of actions. So, if you break down work into smaller pieces, 80/20 shows the parts that matter most.

Here are some ways people use it:

Productivity

Use 80/20 to pick the tasks for the day that will have the biggest impact. Out of your whole to-do list, 20% of tasks create 80% of value. Identify and tackle those first.

Decision Making

80/20 helps decide between options when solving problems:

1. Identify issues

2. Figure out what's causing them

3. Group causes into categories

4. Rank each cause by business impact

5. Solve the top 20% to get 80% of results

Quality Control

Six Sigma experts use Pareto charts to see what's causing process variations so they can improve quality.

The Benefits

The main perk of 80/20 is achieving way more while doing less work. It leads to faster results by tackling things in the right order.

The Six Sigma Process

Six Sigma is a really helpful method that companies can use to improve their work processes and prevent mistakes. The main goal is to reduce variation so that your products turn out right almost every time.

Where Did Six Sigma Come From?

A long time ago in 1809, a mathematician named Carl Friedrich Gauss used something called a bell curve to describe measurement errors. Then later on in the 1920s, a guy named Walter Shewhart realized that if a process strays too far from the average - about 3 standard deviations - you need to fix it.

But Six Sigma as we know it today wasn’t invented until 1986 by an engineer named Bill Smith who worked at Motorola. He created it as a way for Motorola to rate their manufacturing processes by how many defects they produce.

By definition, a Six Sigma process makes less than 3.4 mistakes per million opportunities. So almost all of the products - 99.9997% of them - should turn out without issues if you use Six Sigma properly.

The 5 Main Principles of Six Sigma

Here are the key ideas behind Six Sigma:

1. Focus on what your customer wants. Really understand who your customers are and what quality level would make them happiest.

2. Use data to see where mistakes happen. Map out all the steps to make your product. Then collect data to see if some steps cause more errors than others.

3. Keep improving little by little. Don’t try to totally rework everything overnight. Just continuously tweak parts that could be better.

4. Get your whole team involved. Make sure everyone gets some Six Sigma training so they understand how to spot issues. Different teams will see different problems.

5. Stay flexible. Be ready to update processes when needed. Break processes into separate steps so you can easily fix one part instead of everything.

The two main Six Sigma methods are DMAIC and DMADV...

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The key is that Six Sigma gives you tools to keep your customers happy by avoiding defects. It takes work to implement, but pays off in the long run!

Other advantages:

• Clear priorities
• More done each day
• Breaks work into smaller pieces
• More focused strategy

The Downsides

Some people think 80/20 means you only need to put in 20% work to get 80% outcome. Not true! The 20% and 80% refers to causes and results, not effort. You still need 100% effort on that key 20% to maximize impact.

Also, overusing 80/20 can mean you ignore smaller tasks until stuff gets lost. There's a balance between using 80/20 and getting to everything else. Time management tools can help here.

In summary, the 80/20 rule is all about figuring out and focusing on the vital few things that generate the majority of outcomes. It's been around for over a century because it works! Give it a try.

Attention Current or Future Leaders!

Do you have big dreams of starting your own company or leading a team one day? Well let me let you in on a little secret - the 1% rule!

What's the 1% Rule You Ask?

It's this simple but powerful idea that to achieve greatness, you just need to focus on making tiny improvements every single day. I know - it sounds almost too easy, but trust me, this stuff works magic.

Here's an example:

Let's say your goal is to read 10 books this year to get smarter. Well, with 365 days in a year, reading just 1% more pages a day gets you to 10 books read! Crazy right? It's just little bits here and there but they add up over time.

Now as a leader of a team or company, you can use the 1% rule to take your success to the next level.

Here's Some Cool Ways to Help Struggling Teammates

We all mess up sometimes, but instead of getting mad, have a friendly chat to understand why someone is struggling. Then make an easy plan to improve bit by bit. Celebrate growth along the way!

Tackle Big Goals:

Huge goals can seem impossible. But break them into baby steps and before you know it that big scary goal doesn't seem so scary anymore. Get your team excited about small wins!

Keep Innovating:

Things change fast these days! Encourage your team to always look for little ways to improve things and try new ideas. Tiny tweaks over time keeps your company growing and ahead of the competition.

Learn New Skills:

Getting good at something new is hard. Make it easier by setting small goals like "learn one new coding trick today". Little bits of progress gives you confidence to stick with it.

Prioritize Work:

Too much to do? Make lists and tackle things one by one. Crossing little tasks off feels good and keeps you moving forward when feeling overwhelmed!

Different Rules and How to Apply Them to Business:

Running a business can feel overwhelming with so much to do. It's easy to get caught up trying to be good at everything, when really just a few key things make the biggest difference. This blog post explains simple rules to help focus your efforts, tell a relatable story, and share examples of how to apply these rules to grow your business.

The 80/20 Rule

This rule says 80% of your results come from 20% of your efforts. Think about what the most important 20% is for your business and focus there.

Steps to Apply the 80/20 Rule:

1. Make a list of all your tasks

2. Circle the most important ones

3. Ask yourself - which give me the most back for my time?

4. Brainstorm ways to reduce or delegate the less vital tasks

5. Make a plan to do more of what matters most

6. Use 8/20 to prioritize any project

The Few Who Print for Many

McAllister's Print Shop sat on Main Street in the sleepy town of Willow Creek. The old printing press clacked and whirred as Joshua McAllister prepared another order for his best customer, acclaimed mystery writer Amanda Wright. Amanda accounted for nearly two-thirds of his business with her prolific output of novels, requiring new print runs every couple of months.

The bell on the front door announced another visitor. Joshua looked up from the plates he was arranging to see Willa Stevens, president of the town's tiny historical society. She carried a manuscript in one hand and a cardboard box filled with photographs in the other, materials for the society's upcoming commemorative centennial pamphlet.

"Morning Joshua!" Willa called out cheerily. "I've brought everything for the Whitcomb history booklet I commissioned. It has to be ready for the festival next weekend, 500 copies please."

"No problem, I'll get started on this as soon as I finish Miss Wright's order," Joshua said, smiling. Though orders from Wright and the occasional historical society project kept the print shop afloat, he wished he had more customers like Willa. Still, he reflected, a small operation like his was probably unsustainable in the Internet age without Amanda's reliable business.

The front door opened again. "Good morning," said a wavering voice. Lois Zimmerman, owner of the local newspaper, shuffled towards the front desk, carrying next week’s edition in a manila folder. Though the newspaper only printed a few hundred copies per week, Lois still preferred traditional printing methods to computers and paid Joshua a modest sum for his services.

As Joshua looked around at his customers gathered in the shop, he felt grateful that Willow Creek still valued the printed word enough to sustain his venerable business. The steady clacking of the press continued as the printer got back to work, filling the orders that kept the heartbeat of the community alive, page by printed page.

This is Classic Example of Upselling

It’s important to stay informed about the latest trends , especially when it comes to our businesses. I tend to read up on things online or I attend online classes. Now, I realize that I am probably among the 4% of people who support. In one of my classes I learned about upsells.

We were encouraged to place these sales bumps on products that we promote. Thus, when someone buys a product they are offers other products that could complement the main product. Not everyone will buy into the upsells, just the faithful 4th. Now I understand how these upsells work.

What’s an Upsell?

An upsell is a sales technique where a customer is encouraged to purchase a more expensive item, upgrade, or add-on in addition to their original purchase. Some key things to know about upsells:

They offer customers a chance to enhance or customize their purchase by getting something bigger or better. For example, upselling a fast food meal combo instead of just the sandwich.

They are usually offered at the time of the original purchase, such as at a restaurant, retail store checkout, or on a product page online. The timing increases the likelihood of getting the customer to spend more.

Upsells work because they provide the customer with options and highlight benefits they may not have considered. A skillful upselling pitch focuses on the value added, not just a higher price.

They are more effective when the upsell recommendation is tailored to that particular customer and their needs. Generic upsell attempts often don't work as well.

Upsells increase the average order value and generate more revenue for the seller. Even a small upsell conversion rate can make a difference in profitability over time. It also increases the average order value (AOV).

The key for businesses is training staff to upsell politely and naturally, without being pushy or aggressive. Customers should feel the upsell offers them a convenient service, not an obligation. Achieving that balance is important for upsells to work.

The 64/4 Rule

This states 64% of sales come from just 4% of customers on average. Figure out who your best customers are and focus on them.

I once advised a friend to start a new business. He wanted a fancy website with all kinds of complex features. But his target audience was small and not very internet savvy. I told him to forget about complicated site design - old fashioned networking and emails would be more effective for his niche.

The key is to step back, see where to best spend your limited time and money for the most impact.

The 1% Rule

This rule says that small, consistent improvements compound over time into big advantages.

Imagine 2 plants growing next to each other. If one grows just a little faster each day, it soon crowds the other out and takes up all the sunlight and nutrients. Success builds on itself!

In business, tiny differences in things like convenience or customer service can make one company dominate an industry over time. Small margins compound, so strive to be just slightly better than competitors day after day.

Focusing your efforts on the most vital 20% of tasks, serving your best 4% of customers exceptionally well, and steadily improving 1% at a time can make all the difference!

My Q&A for Today

What do you think is the most important 20% for your business? Who are your best 4% of customers? And what's one way you could improve your product or service by 1% this week?

So, what do you think future leaders? - could the 1% rule work for you? Just remember greatness comes from small progress compounded over time. Now get out there and grow your leadership 1% better every day!

Hey, let’s get your 80/20 rule in gear!

TheRachele