Pareto Principle: The Key To Efficiency

Tim Ferriss in The 4-Hour Work Week applied the Pareto Principle to efficiency. The Pareto Principle (also known as the 80/20 rule) states that 80% of the effects come from 20% of the causes. The creator of this principle, Italian economist Vilfredo Pareto, initially applied it to wealth and income distribution. But the Pareto Principle can be applied in other fields like in business and your personal life.

1) In Business, ask yourself the question:

  • Which 20% of your customers represent 80% of your sales?
  • Which 20% of your time and effort produces 80% of your results?
  • Which 20% sources are causing you 80% of your problems in business?
  • Which 80% efforts are producing only 20% of the results?

In essence, to be a more efficient business, the business owner needs to eliminate the inefficiencies and  multiply the strengths.

For example, when a business is experiencing headaches from customers, ask which 20% of the customers are causing 80% of the problem? The best solution might be to drop these customers.

2) In your personal life:

  • What 20% sources are causing 80% of your problems?
  • What 20% sources are causing 80% of your happiness?
  • What 20% sources are causing 80% of your outcome?

To be happier and more productive, we see that the Pareto Principle can be applied to our personal lives.

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