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The Pareto Principle: Maximise ROI by focusing on the 20%

Quite possibly the most useful theory a manager can know. Why? It will increase efficiency, return on investment (ROI) and reduce workload.

What is it? Vilfredo Pareto first used the principle to demonstrate that 80% of wealth in Italy was owned by 20% of the population. Joseph Juran, the quality Guru and one of the founding fathers of Total Quality Management systems (TQMs) found that the 80/20 split can be applied to a wealth of social and business situations.

For example:

  • 20% of staff will cause 80% of your problems

  • 20% of customers generate 80% of revenue

  • 80% of complaints originate from 20% of customers

  • 80% of income is earned from 20% of the products sold

When can I use it? Use the 80/20 principle to quickly identify where to focus efforts to maximise ROI, but remember this is only a rule of thumb and the actual split my vary (90/10 or 70/30).

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About the author.

Hi, I'm Heather Beckett - the founder of BPO. I help small business owners to think, plan and act more strategically.


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