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How is Pareto’s Principle useful?

How is 80_20 useful Image by Matthew Broomhead

Apparently the Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto. Vilfredo observed in 1906 that 80% of the land in Italy was owned by 20% of the population. He went onto develop the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.

In my experience it is not perfectly exact, but it does give a good indication. For example, I believe that approximately:

  • 80% of your profits come from 20% of your customers
  • 80% of your complaints come from 20% of your customers
  • 80% of your productivity comes from 20% of the time you spend
  • 80% of your sales come from 20% of your products

Now there are obviously two types of people as well:

The 20% that produce 80% of the results

and

The 80% that produce only 20% of the results

So the question we have to ask ourselves is from today onwards which one have we decided to be?

Matthew Broomhead
“Raising the level of Business Skills in Britain”
Creator of Broomhead Business Channel

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