Pareto Principle in Business
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Pareto Principle in Business

Lessons from Personal MBA.

The Pareto Principle, or the 80-20 rule, is the theory that in any area, 20% of a subset contributes to 80% of the result.

You will see this pattern in life and many areas of life:

  • In businesses, 20% or less of the customers account for 80% of the profit. This is an indication that you need to focus more of your time and effort on the critical few that matters.
  • In companies, less than 20% of the employees do 80% of the constructive or high value work.
  • You use less than 20% of your items over 80% of the time

Knowing this theory, you need to understand that whatever that is outside of the 20% is significant opportunity costs. If you’re spending most of your time in unproductive work, you aren’t getting the real work done. The same applies to your finances where you need to put money in what matter.

Find the inputs that produce the outputs you want, then make them the focus of most of your time and energy.