How Pareto’s Principle Can Help You Make Money

Making money online is only different from making money in the tangible world of bricks-and-mortar in that the technicalities are different.  You could compare just about every aspect of a "real world" business to an online one, and one of the general rules of business (and life in general) is known as the 80/20 rule.

In the late 19th Century, the Italian economist Vilfredo Pareto suggested this, and it became widely known as Pareto's principle because of Josepth Juran (who sadly died last year). Juran is mostly known as being the main evangelist for quality in all things related to business.

Pareto suggested that ROUGHLY 80% of any effects come from 20% of the causes.  While he originally applied this to land ownership in Italy (20% of the people owning 80% of the land), both he and Juran realized that this could easily be applied to all things.

In Business, this rule stated two apparent things: 80% of your business will come from 20% of your customers AND, 80% of your problems will come from 20% of your customers. There IS a correlation between the two, but it's not what you might expect; the correlation is, in fact, reversed.

The connection between these two figures is quite the opposite to what you would at first think, but on further investigation, it becomes clearer. If somebody is trading with you regularly, they know your products, they know the way you do business, they know your staff etc.  In fact, they are very familiar with you company in all respects, so they RARELY have problems, and when they do, they know how to resolve them (who to call, whether they should email etc.).

The 80% of your customers who do only 20% of your business with you are NOT so familiar with your company and the way it operates, nor do they know who to call or how best to contact them.  THESE are the people from where most of your problems will arise. They may not even know how best to order from you, so are more likely to make mistakes from the outset.

The 80/20 principle is actually a VERY ROUGH guide.  This is easily evidenced by the fact that the Government owns 30% of land in the U.S. and in the U.K. well over 50% is owned by the Church and Royal Family combined.  The 80/20 Rule certainly doesn't apply in these cases; so, treat the 80/20 Rule more as a GUIDELINE only.

So, with this in mind, how can this be of any help to you? Well, the first place to start is with your time.  You should try to determine which (roughly) 20% of your time is the time that brings you the most rewards (monetarily that is).

Then, once you've figured-out what it is that you do to make most of your money, DO MORE OF IT!  Those areas that take up your time but accomplish very little should, if at all possible, be either stopped altogether, allocated LESS time, or be delegated to somebody who is paid to do that kind of work.

If this simply means watching 1 hour less of Television each day, then that's a very legitimate place to start.  On AVERAGE, people in the U.S. watch about 4 hours of TV every day.  If you're not one of these, please ignore this.  However, if you will honestly put yourself in this category, then cut down a little.  You really won't miss it as, let's be honest, most Television consists of either commercials or fun (but useless) fiction.

Self analysis is a key component of applying the 80/20 Rule to improve your life.  Let's face it, we can make changes to just about everything if we choose to, but whether those changes benefit us or not is another matter altogether.

So you must make an analysis of your time, effort and other resources before you can determine exactly WHERE to make the changes that are necessary to your improved life and business.

A simple example would be this: if you eat 5 cakes a day (or ice creams or a combination of these….don't tell me you've never done that!) and exercise for 5 minutes, how would your life improve if you ate only 1 cake a day and exercised for 20 minutes?  Those 20 minutes of exercise can easily be what makes you feel physically good for the next 80 minutes (though in reality the effects of exercise last a LOT longer!).

This may sound like a puerile example, but consider two things; some people actually do this (or don’t exercise AT ALL) and even if you don’t do this, there is most likely something YOU do that is equally bad for you that you aren’t aware of.

I like to spend a lot of my time educating myself.  Most towns have libraries and there millions of books to read.........some of them are actually GOOD books with FACTS in them, though these are in the minority I’m afraid to say.

You can give yourself the equivalent of a PhD education just by reading the right kind of books regularly.  Spend some of your time doing this, and a little less doing non-productive things, and it will pay you big dividends.  You just need to learn to be patient in when receiving these rewards; this is known as “gratification delay” by many psychologists.

On a final note, AUTOMATE as many things as possible, even if this means initially spending more time setting these things up.  Do something ONCE whenever possible so that you can reap the rewards of this work for years to come.

The right software on your computer can make your life a lot easier (once you’ve learned how to use it, which would count as doing something ONCE) and automating tasks can free-up many hours that you can spend on being more creative in your business, and indeed, in your home life.