Wednesday, August 26, 2009

The 80:20 rule (or the Pareto Principle)

You might have come across the 80:20 rule or policy (also known as the Pareto Principle) before, but do you really understand what it is all about? Basically it states that 80% of the effects come from 20% of the causes.
It emerged when an Italian economist Vilfredo Pareto verified that 80% of his country’s wealth was owned by 20% of the population. A few years later, the business management thinker Joseph Juran realised this principle could be applied to a broad set of work from the science of management to the every-day life.
  • Project managers know that 20% of their work consumes 80% of their time and resources;
  • Business managers know that 80% of their sales will come from 20% of their clients;
  • Advertisers know that 80% of the enquiries will be generated by 20% of the advertising mediums;
  • You know that 20% of your weekly activities represent 80% of your happiness;
  • You spend 80% of your salary on 20% of things (such as rent, utility bills and transportation);
There are numerous situations where this rule can be applied, and even though it might not always be true, it is likely that it will still be a minority of actions that produce the majority of results. The way how the Pareto principle can be beneficial to a marketer is that it reminds you to focus on the 20% of activities that really matter and that will make the difference as they will produce 80% of your results. So if you will not have time to do everything you had planned to do, make sure you do not put aside any of the important 20% work that really matters. Work smart, not hard!

How can the 80:20 rule apply to a marketing plan?

It is crucial for a marketing plan to achieve the maximum impact; therefore it must be clear, concise and simple. It needs to concentrate on the 20% really relevant research and information to obtain 80% of its efficiency and consequently 80% of the business profits.