Pareto’s Law- The 80/20 Rule

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In this article, I am going to share an interesting concept, which I have found to be helpful.

Pareto’s Law was pioneered by Italian economist Vilfredo Pareto.

Pareto’s Law is a pretty simple 80/20 rule.

It states 80% of inputs produce 20% of the results and just 20% of inputs produce 80% results.

He came up with this theory when studying the wealth distribution of Italy. He found that 80% of wealth is accumulated by 20% of the population. He soon realized that this 80/20 principle is beyond economics.

 Eighty percent of Pareto’s peas were produced by 20% of the peapods he had planted.

80% of a company’s profits come from 20% of customers and products.

80% of all stock market gains are realized by 20% of the investors and 20% of an individual portfolio.

20% of your relationships cause you 80% of your misery.

How is this law relevant to your life?

This law holds practical relevance to your life. Only a few activities throughout the day are contributing towards your desired goal. Most of the activities you do throughout are futile.

If you can find out 20% of those activities, leverage them, and eliminate all the nonsensical parts, imagine your productivity. Think of how much more you could accomplish. 

To put things into better perspective, an obese person on a weight loss journey is advised to mind his eating habits. We all know that 80% is the diet. (It doesn’t mean you stop working out.)

Instead of avoiding things under the pretext of being busy, remove all the things that aren’t adding value to your life, and fit in the useful stuff.

I have met people complaining about not getting sufficient time to work on their health. On the contrary, they’ll waste a great deal of their day watching movies, series, gossiping, social media. I am sure this accounts for not less than 3 hours. Suddenly I have created time for you to work on your health.

Even today Pareto’s law applies to business. 80% of the revenue is determined by 20% of the customers. Many people use this technique and focus on that 20% of customers. Well, it’s justified, why to waste time on customers who hardly provide you a sale. There are companies that also derive 80% of revenue from 20% of their products.

The classiest example under Pareto’s law would be McDonald’s’. McDonald’s in its initial years realized that 80% of its revenue is derived from 20% of its products. That’s when they shifted their entire focus on hamburgers, cola, and a few other things and came up with the speedy service system. This proved to be a game-changer for them.

Another field of life where Pareto’s law can be helpful is Time management. We all have the same 24 hours a day. Yet some people come out more productive than the others. Because they are maximizing that 20%.

The rule can be varied to 90/10, 95/5, etc.

Similarly, you need to sort out the things in your life. You have limited energy and time. Harness it in the right direction. Get the prominent things done first. For starters, sit back and conduct an honest audit of yourself.

Well, that’s it for today.

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One comment

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