There are tons of decision-making strategies that you can follow to make life a little better.
Whether you use it for life, business, investing, or management, it could make a massive difference in your decision-making process.
One of these techniques is the Pareto Principle, or what folks usually call the 80-20 rule.
So, what is the 80/20 rule, and how can it help you succeed in life, particularly in business?
If you want to find out if this strategy is for you, this post will show different ways to use it.
What is the 80-20 Rule?
In a nutshell, 80/20 means that 80% of the effects are from 20% of the causes.
It applies to economic use, personal finance, and time management because it is simple and easy to follow.
Think of it this way: if you have a business, 80% of your revenue comes from 20% of your customers.
This rule helps you establish the goal of identifying your most productive aspect so you can focus on it.
If you think a specific product from your business is the crowd’s favorite, that’s the one you should prioritize.
How Did the 80-20 Rule Start?
Dr. Joseph Juran, an engineer and management advisor, coined the term “Pareto Principle” after Vilfredo Pareto.
It was Vilfredo Pareto who started developing the formula for the 80/20 rule back in the early 1900s.
But only Dr. Juran used this formula to improve business and management in the 1940s.
How the 80/20 rule came about is a pretty funny story.
The concept sprouted from Pareto’s garden, where he had peapods that produced peas.
In his analysis, 80% of the peas he harvested were from 20% of the peapods, which inspired the rule.
While the rule started from an unusual field, he found that you can apply it in other areas.
After his observation, he found that 20% of the people had 80% of the land in Italy, which led him to develop a hypothesis.
His observation and discovery piqued the interest of Juran, who works as a management consultant.
He used the Pareto Principle to determine the flaws and difficulties at work and help resolve these issues.
How to Apply the 80-20 Rule?
The 80/20 rule is a flexible decision-making strategy, as you can use it in almost any field besides business.
You’ll have a higher chance of success when you know how to approach these fields using this technique.
However, it is also essential to note that this rule is only an approximation, and this ratio can differ depending on the situation.
Just because the rule says that 20% is the most crucial doesn’t mean you’ll ignore the remaining 80%.
It implies that 20% is your priority, especially if it brings you more income, satisfaction, or output.
You can use the 80/20 rule to identify the most profitable products.
By doing so, you can focus on managing, providing resources, and operating those areas.
Let’s say your business is in the food industry, and 80% of your profit comes from 20% of the menu, which is burgers.
It will give you an idea to focus on providing high-quality burgers and inventing new flavors for the customers.
In a broader aspect, this information can help you make strategic decisions like investing in more resources and promoting products.
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The Pareto Principle is also helpful in productivity because you can learn how to prioritize and maximize efficiency.
If you focus on 20% of your urgent and significant tasks, then you can achieve more when it comes to productivity.
Prioritizing the heavier tasks will help you maximize your time and reduce stress from procrastinating, affecting your output.
In the manufacturing industry, defects are typical whether you use machines or people to create a product.
To have better quality control, you can use the 80/20 rule to minimize defects as much as possible.
You can identify the root of 80% of your problems and eliminate 20% of defects during the process.
If you want to build a sound investment portfolio, applying the 80/20 rule is an excellent guide to getting more significant returns.
For example, you’ll want to invest in 20% of the stocks in the Standard and Poor’s 500 that produce 80% of market returns.
Another way to utilize this rule is to allocate 80% of your money to lower-risk index funds.
Meanwhile, you can use the remaining 20% for growth funds, so you have the potential for higher returns and income.
But remember that you should do more than stick to this strategy and monitor your performance to see if it gives you your desired results.
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You can apply the Pareto Principle in blogging by identifying which content brings in the most traffic.
Or you can also find out what keywords bring in most of the search traffic so you can optimize your resources and produce better content.
But it doesn’t mean you should ignore the remaining 80% because you can still repurpose them into another money-maker.
Will the 80/20 Rule Work on Me?
The Pareto Principle is a practical rule to use daily, but it is not guaranteed to work for everyone.
Generally, it helps identify the most crucial factors contributing to the effect that brings good or bad results.
However, the 80/20 rule is mainly a rough approximation, and you should rely on something other than these ratios.
While it helps identify key areas to prioritize in making decisions, you should use it sparingly.
It can go downhill if you use it to replace comprehensive analysis from data and experts.
It could be beneficial to use Pareto Principle, but instead of using it as a primary factor in decision-making, use it as a guide.
You may think of it as a rule of thumb, which means you also need other strategies to get better results.
Related Reading: Mastering Your Liquid Net Worth – Learn About It Here.
Everyone has different situations and factors to consider when making business, life, or financial decisions.
But whatever they are, you can use the Pareto Principle anywhere as it can guide you to make better decisions.
It is not a fixed rule that you cannot adjust according to your situation, so be flexible and use it as needed.
Use it with other strategies as much as possible because the Pareto Principle is just one of many life tools.
You’ll be much more confident when you make significant decisions because you’ll have this in your toolbox.