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The 80-20
Principle
Written Sunday 04/03/05 by Joseph Rossini

A great deal has been written about the mystical 80-20 Principle or Rule, often called the Pareto Principle. Its origin dates back to 1906 when an Italian economist named Vilfredo Pareto studied the distribution of wealth. Pareto concluded that 20% of the people received 80% of the wealth. I don’t believe that anyone would be surprised today, in our statistically overloaded world to learn that the majority of the wealth and assets are controlled by a few. However in 1906 when there were no computers or even calculators, this was probably a surprising revelation. Pareto’s observations were later expanded and made famous by Dr. Joseph Juran in the United States. Juran proved and applied his “Vital Few and Trivial Many” theory to more facets of business. Unfortunately, his name did not stick to his 80-20 Principle, which adopted the name The Pareto Principle.

The interpretation of this principle is used often today in business and can be applied to a broad spectrum of situations and conditions. I first learned about this 80-20 Principle in the early 70’s as a sales and marketing representative. Because my company had a “state of the art” computer system, we could prove that approximately 80% of our sales in all product lines were generated by approximately 20% of the stocking units (SKU’s). I mention approximately, because the numbers are never exact. It could be 18% - 82% or 21% - 78%. It doesn’t really matter if the totals amount to 100%. What was eerily consistent was the fact that a vital few part numbers accounted for the majority of the sales in each line.

Once you witness this Principle with clear evidence, you become a believer of its power. You can then let your mind wander into all phases of your business and finally have it creep into your personal life – testing its validity whenever possible. For instance you may find that approximately 80% of your sales are produced by 20% of your customers. Likewise, 80% of your profits are generated by 20% of your customers. Or 20% of your activities produce 80% of your results. Or 20% of your staff account for 80% of your production. Or on a personal note 80% of your aggravation comes from 20% of your activities. Or 20% of the people you engage in produce 80% of your joy or 80% of your stress. The list of comparisons can go on and on.

Knowing this principle for well over 30 years has helped me tremendously to focus on whom and what is really important each day. Put another way – “Don’t Major in Minor Things” as eloquently quoted by Jim Rohn. From the inception of my sales career, I concentrated the majority of my time taking care of my best customers. Each year, I tried to make my best customers more productive in their own business and helped them to grow their sales and profits. By doing so, they rewarded me with the majority of their purchases and my sales grew quicker than anyone in my company. I continuously gave away my smallest customers to other sales reps, to free up my time for larger customers. In a matter of a few years, as the youngest and least experienced salesperson on a staff of 30, I applied the Pareto Principle in my territory and was producing three times the sales of the second highest representative. I also had the fewest number of accounts (22) verses most salespeople who had 40-50 accounts. Lastly, my clients were the happiest, most profitable and paid their bills right on time.

If this all sounds like some miracle had occurred – it was far from it. I worked long hours and very diligently planned my minutes and hours each day, investing them with the clients who would provide me with the greatest return on my time. I provided “REAL” services that my clients NEEDED, with honesty, empathy, and respect for each individual. They saw VALUE in my services; respected my time and efforts; grew their business; and shared their growth by rewarding me with more business. Much of my success resulted by understanding the principle of focusing on the vital activities necessary, that would produce the majority of my results.

Once I was in my own business – guess which clients we concentrated on? You guessed right if you said the largest and best in the marketplace. While not always the easiest to obtain – they were the clients I wanted. With great intensity and passion, we focused on acquiring the business of the highest volume, best paying customers. We did our research, learned their needs and went to work on doing everything humanly possible to make them “WANT TO BUY” from us. And once they did, we did everything humanly possible to keep them growing, happy and buying more! Our company grew quickly and profitably, and it looked like a repeat miracle in the making.

Each of us creates our own destiny by the actions we engage in, every minute of every day. To improve your destiny you need to set goals, map out a plan and then focus on what REALLY MATTERS!


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