I am firm supporter of diversification in business, investment and wealth creation. The reason for this is because diversification has many advantages based on the premise of not putting all your eggs in one basket. Diversification is vital because, it helps you to spread your risks and increase your opportunities.
However, what if I told you that too much diversification or excessive multi-tasking might just be reducing your productivity and killing your business?
In this article, I will show you 10 fantastic ways you can use the Pareto Principle or the 80/20 rule to increase your productivity and grow your business and investment.
What is the Pareto Principle?
The Pareto Principle is also know as the 80/20 rule. This rules says that 20% of your efforts or inputs or activities in most endeavours will generate 80% of the results you will get from the activity.
In other words, 80% of the outcome you will get from any activity will be produced by 20% of the input into the activity.
For example, if you have about ten goals you wish to achieve, two out of the ten goals, if achieved, will yield the most results generally.
This implies that instead of pursuing all ten goals simultaneously, for effectiveness and better results, you should find out the best 20% that matter the most and work towards achieving them first as they would make the most impact to your overall goals attainment.
The Pareto Principle was named after the Italian economist Vilfredo Pareto, who observed in 1906 that 80% of land in Italy was owned by 20% of the population. He expressed this astonishing observation in a mathematical formula which is now commonly referred to as as the 80/20 rule.
As I said earlier, primary idea of the Pareto Principle is this:
The majority of the results which can be derived from a system, an activity or a process are usually caused by a relatively small number of causal factors.
The Pareto principle is very vital in deciding which areas you need to focus your efforts and resources on in order to get optimum efficiency.
How to use the Pareto Principle to increase your productivity and grow your business and investment
Majority of people apply the Pareto Principle basically to time management and goals setting. However, the Pareto principle can be applied to a variety of human endeavours.
My focus in this post would be on how you can use this principle for business and investment optimisation and increased productivity.
Here are vital ways you can use the Pareto Principle to get better financially through targeted application of the principle to your business, investment and other wealth creation activities:
1. Marketing optimisation: It can be used to determine the most effective marketing strategies and channels. Through the use of the pareto principle, you can have an idea about the marketing channels that are bringing you more customers or engagements. This could be social media, print media, mass media or other forms of marketing.
Even in a particular family of marketing channel, like social media, you can also analyze the various elements in order to know the most effective amongst them and allocate more resources to them. For example, Facebook promotion and ads might be yielding more marketing results than Instagram, Twitter and Pinterest. With this knowledge, you can plan and allocate your marketing resources accordingly for optimum results.
2. Investment optimisation: If you have observed very closely, you would know that just a few out of all your investments are yielding you the largest return on investment, ROI. This can be applied in various ways. If you have several stocks, it is wise to put more money into those stocks that are your biggest or top earners. You can determine this by carrying out an analysis of those stocks that perform more than others by way of capital appreciation or dividend yields.
Also, in a more diverse manner, another good way to use the Pareto principle in investment optimisation is to determine the few best investment channels out of a wide range of investment channels that you have and put in more of your monies into them.
For example, you might decide to put more of you money into stocks if that’s the investment that yields you the best returns among other investments like money market investments and real estate investment.
3. Sales efforts and planning: If you have a variety of products that you are selling, on a close observation, you would notice that about 20% of the products are selling more than all the products you have for sale.
Therefore, this would help you to stock more of those products that are in higher demand, instead of tying down your money in stocking other 80% of the products that don’t sell as fast as the other 20%.
4. Setting your business goals: About 20% of most of your business goals will have the highest impact to your success when achieved. Just like the example I gave in earlier, if you have 10 goals you need to achieve in a day or week or a quarter or in a year, two of the goals would create a more positive impact to your overall, business progress.
Therefore, it is wise to at first, identify those vital 20% of the goals and give more time, efforts and other resources to them in order to achieve those goals first before moving to the remaining 80% of the goals.
5. Production planning: Some businesses enjoy more patronage at certain seasons of year than at other seasons. For example, producers of soft drinks, like Coca-Cola, Pepsi and Guiness etc enjoy more sales during festive seasons, like Easter and Christmas periods.
Therefore, such a production company would ensure that more of its production should be planned around the peak periods in order to optimise the benefits that come from the increased sales and product demands during these periods.
6. Problem troubleshooting: In troubleshooting a problem, there could be several causative factors, which in one way or the other contribute to the problem.
However, there are a few ( usually about 20% ) out of the problems causative factors that contribute the greatest to the problem. Finding out those vital 20% percent causative factors will go along way to helping you solve the particular business problem that you are encountering.
For example, I have seen many entreprenuers complain of low business patronage and they wonder what could be the reason for this. Some possible reason for this can include:
- Poor marketing
- Low quality products
- Poor customer service
- Inappropriate business location
- Lack of finance to adequately stock a variety of products
- Poor sales strategies
- High product selling prices
However, among the above listed causative factors, the greatest factor that could be causing low patronage for the business can be poor marketing.
7. Leadership efforts and management of followers: One major concern which many leaders encounter is to ensure that they have loyal and committed followers.
As a leader of a large business organisation, if you have disloyal followers, you might have difficulties leading effectively or achieving your organisational goals and key performance indicators, KPIs.
However, one easy way of getting all or most of your followers under control or in support of your initiatives is to identify the few influencers among them and work on getting them to buy into your leadership vision.
These few influencers are usually not more 20% of the entire group. They are important because they have impact on other members of the group. If they oppose your leadership initiatives, they are likely to influence others directly or indirectly to oppose your initiatives too. Also, if they are in support of your leadership initiatives, then other members of the group are more likely to join them in support.
Therefore, it’s wise to identify these influencers among your followers and ensure that they are loyal to you and most of your leadership efforts would be easier and effective.
8. Business time management: You may not believe this, but I am certain that some times of the day are more suitable for increased productivity than others.
Personally, the first few hours of the day just after waking up from sleep in the morning are usually very productive in planning and mental reasoning. If this time of the day is effectively utilised, the rest of the day is expected to be also effective.
This is also applicable in many businesses. For example, pharmacy shops enjoy more sales in the evening. Same with barbers, as most people would love to have their hair cut in the evening when they are back from work.
9. Business relationships optimisation: If you follow this principle, you will find out that only few out of all your friends and associates are making the best impact in your life and career. Wisdom demands that you should give more time and efforts to nurturing those vital relationships in your life instead of allowing your life to be clustered by majority that don’t contribute anything useful to your development and progress.
10. Determining your most productive staff: Out of all the staff you have, most times just few of them are making the most contribution to your business success by way of achieving their job responsibilities and duties optimally.
You need to identify your key staff and ensure that you do all within your power to keep them motivated so that you don’t loose them and so that they will continue to help you to achieve your best results.
This doesn’t mean you should neglect other staff. However, take note of your best performing staff through periodic employees performance appraisals and encourage them to keep doing what they are doing.
A balanced way of using the Pareto Principle
As we have seen above, the Pareto Principle helps you to determine the most important 20% of your input that would yield the 80% output. However, this rule doesn’t suggests that you totally neglect the remaining 80% of your inputs. If you do so, you may have some problems.
The reason for this is because the area of most effective inputs could be dynamic over time. What I mean is that what yielded you 80% of the results today may not be that same factors that would yield you the same results in the nearest future.
Therefore, it’s important that you keep an open mind. While you optimise the 20% of your vital input, also keep the other remaining input in good condition and continue to apportion some resources to them as you wouldn’t know if they would become your best few over time.
If you apply the Pareto Principle accordingly by focusing on the 20% that matters for an 80 results, as discussed above, you definately should expect personal growth and effectiveness in what you do and overall business and investment growth and progress.
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