Understand the science behind the Pareto Principle and learn how to apply it to different areas of the company – WAU
The Pareto Principle, or 80/20 rule, is a trend that predicts that 80% of the effects arise from only 20% of the causes, and can be applied in several other cause and effect relationships.
Approximately 20% of the effort you dedicate to work is responsible for 80% of your performance, 20% of the products or services that your company sells return 80% of the revenue, and 20% of your employees guarantee 80% of the results. This is the famous Pareto Principle, an intriguing pattern observed in the most different scenarios and contexts.
The 80/20 rule, as it is also known in many works, is a trend that predicts this proportion in different cause and effect relationships. The concept applies to both personal life and major events and business, as we will see in detail in this post, and can be used as an efficient management tool.
Continue reading and understand the story behind the Pareto Principle, its findings, how to use it to improve your company’s results and why approximately 20% of the information in this article will be responsible for about 80% of your understanding!
The history of the Pareto Principle
Although named after the Italian sociologist, political scientist and economist Vilfredo Pareto, in reality, the Pareto Principle was suggested by business consultant Joseph Moses Juran, who used Pareto’s observations in his quality management work.
One of the first documented analyzes of the 80/20 rule was based on the cultivation of peas. Pareto realized that only 20% of the pods produced about 80% of the peas.
In 1906, the sociologist also found that 4/5 of the lands in Italy belonged to 1/5 of the population, but, only in 1940, the principle was formally recognized with Juran’s studies.
What stands out is the universality of applications of the rule. The Pareto Principle can be used in economic, sociological and computational analysis, in which other concepts are worked on, such as Pareto distribution (statistics) and factor scarcity principle (Software Engineering).
Administration and Marketing, however, were the areas that most contributed to the popularization of the concept, with several studies, books and cases from companies that decided to put the 80/20 rule in favor of productivity. That’s what we’re going to talk about now.
The 80/20 rule applied to Marketing
When making analyzes based on the 80/20 rule, we certainly do not expect to find exact numbers within this pattern. That would be unnatural, just like it is not even recommended to use this rule all the time.
In reality, the Pareto Principle is only a propensity of results that, within businesses, is usually expressed in data such as:
- 80% of revenue is the result of 20% of customers;
- 80% of sales come from 20% of products;
- 80% of complaints are made by 20% of customers;
- 80% of sales are due to 20% of the sales team;
- 80% of the results are due to 20% of the investments.
From information like this, we can create a relationship between effort and reward, in which 20% of inputs, efforts and causes produce 80% of the outputs, results and consequences.
Thus, the Pareto Principle can help a company to manage its resources in a wiser way, concentrating the efforts and time of its managers and employees on key points (the 20% that guarantee 80% of its return).
To make it even easier to understand the topic, we made a video explaining everything about Pareto’s rule and its relationship with Marketing.
How to apply the rule in Digital Marketing?
Applying the 80/20 rule, specifically, in Digital Marketing, we arrive at data very similar to those mentioned, highlighting only a few specific details:
- 80% of online sales are also related to 20% of available products;
- 80% of searches come from 20% of keywords (standard also known as long tail distribution);
- 80% of traffic is generated by 20% of posts;
- 80% of leads are generated by 20% of published content;
- 80% of engagement is generated by 20% of the audience.
Adopting Pareto’s Law to optimize your Content Marketing strategy, for example, the first step will be to identify the channels that generate the most results – websites, blogs or social networks – and focus your content production on the platforms that most generate engagement. or leads.
The same goes for the production of parts. The choice of formats, themes and keywords for articles, posts and videos should be mostly aligned with specific interests of the 20% of its audience that most generates results for the company.
And what to do with the remaining 80%?
We already know that we must focus our efforts on 20% of the factors that generate 80% of the results, but that does not mean that the first 80% must necessarily be neglected.
Of course, when reviewing processes and strategies to optimize the management of time and resources, unnecessary activities and actions can be detected and, in this case, the ideal is to eliminate them. The same goes for groups of customers or leads that do not generate any return, even after countless attempts. Do not waste your time!
Take care, however, not to lose any jewelry mixed with the garbage. Your base can hide quiet high-volume buyers and who, for some particular reason, only buy between long intervals.
Similarly, content or channels that do not show very satisfactory results in the present may gain popularity in the future. It is therefore necessary to resort to constant analysis and optimization. The tip is to apply the 80/20 rule also to identify problem points.
If you plan to get rid of some unprofitable customers to focus on those that generate the most return, consider the 20% that least influence your overall balance sheet. If you want to make your content marketing strategy leaner, identify the 20% of actions that generated less results in the last periods, and so on.
How to use the Pareto principle to increase employee productivity?
In another context, but no less important, the Pareto Principle can also be worked in favor of the productivity of its collaborators and partners.
If 20% of your team is responsible for 80% of the return obtained by the company, it is essential to identify these employees or salespeople and try to understand what makes them so productive and, with this knowledge, work on endomarketing actions to encourage others.
The principle can also be used in an inverse way in this case, identifying the 20% of employees who have lower productivity or are frequent targets of complaints. The low efficiency of an employee can be related to an internal problem that is not so noticeable to others, and its solution can benefit everyone.
The Pareto Principle applied exponentially
The Pareto Principle has been used for many years by researchers and entrepreneurs in the most varied areas and, more recently, the famous rule has gained a new look with the analyzes of the American author and marketing consultant Perry Marshall.
In his work “80/20 Sales and Marketing”, Marshall clarifies that this principle can be worked on exponentially. That is, the 80/20 rule remains valid within the first 20%!
We will understand this better. First, we found that approximately 20% of your customers are responsible for 80% of your turnover, right? However, in the middle of this 20%, there are another 20% responsible for the largest amount of sales, that is: 4% in the general calculation.
We can conclude, then, that only 4% of your customers guarantee 64% of your return (80% times 80%), and it wouldn’t hurt to find others like them. If you need more accurate data to create a persona, for example, this in-depth analysis helps you develop profiles that are extremely aligned with the most valuable consumers for the business.
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Cautions when adopting the 80/20 rule
As you can see, Pareto’s Law can be used in different ways, but the ideal is to apply it sparingly. In many situations, the results may be outside the rule and, therefore, the 80/20 ratio will not always deliver the clarity necessary for decision making.
Analyze your own reality
Pareto’s rule starts from a very simple principle, but it is only really effective when supported by realistic information and applicable actions.
It is not difficult to find excessively general models of management in works and content on the Internet based on the 80/20 rule and which, as obvious as they may seem, can become a real trap for the business.
In more succinct words: do not confuse your 20% with the 20% of the neighborhood! Although they are subject to very similar requirements and tasks, companies have very different characteristics, problems and objectives.
The best information that an enterprise can acquire is that based on its own reality: its history, analysis and tests. It is these data that should support your strategies.
Consider the variability of the facts
Another important point concerns the variability of the facts. Although we find that 20% of the activities carried out generate 80% of the general productivity, whether in personal life or in an enterprise, this does not mean that they will always be the same.
An individual or a company goes through several phases in the course of its development, and each of them presents specific demands. Clinging too much to factors that generate high momentary returns can hinder its evolution and maturation, compromising its long-term results.
Thus, identify the 20% of activities, employees and customers that need improvement and focus your efforts on the 20% of activities, employees and customers that most contribute to the success of the business, continually readjusting your strategy to allow the results to evolve.
The Pareto Principle is not a magic, much less a great universal law. It is simply a trend observed on several occasions, which can be used as a powerful tool to optimize productivity in business and in your personal life.
Do you want to learn other concepts to make your company even more productive? So, continue on the blog and find out now how to do a SWOT analysis!