October 27, 2022
This concept is critical to understand how you can achieve much more with much less time and effort, simply by concentrating on the all-important 20%.
What is the 80/20 Principle?
(also known as The Pareto Principle)
It states that 20% of our efforts generate 80% of the result and was discovered by Italian economist Cilfredo Pareto in 1896.
We tend to assume that 50% of the efforts will result in 50% of the results. There’s a natural expectation that causes and results are generally equally balanced… This 50/50 fallacy is inaccurate and harmful.
In reality, 80% of the energy is wasted in combustion and only 20% gets to the wheels; this 20% of the inputs generate 100% of the outputs — Unless conscious, consistent and massive efforts are made and sustained to over come it, the 80/20 principle will always reassert itself.
How can we leverage this to make more money?
If you analyze your business, you’ll notice that 80% of your profit is coming from 20% of your revenue. Conversely, 20% of your revenues account for 80% of your profits. But few stop to think whether you could have a business solely composed of the most profitable chinks and get rid of 80% of the overhead.
Scale without additional complexity will always give lower unit costs. To deliver to one customer more of one product or service, provided that it is exactly the same, will always raise returns.
But scale rarely results in more of the same… It usually involves providing a new product or service — If new customers are involved, they generally have different needs causing greater complexity. And with complexity comes huge hidden costs.
Always try to identify the simplest 20% of any:
👉 Product range
👉 Sales channel
👉 Service delivery
👉 Product design
👉 Marketing message
👉 Product manufacture
👉 Customer feedback mechanism
The way to create something great is to create something simple — Richard Koch
How can we leverage this to be happier?
The 80/20 Principle also applies to our personal lives…
Small amounts of time (20%) have contributed a disproportionate amount of your happiness (80%).
Identify your happiness islands and deduce what is common between all or some of them. Repeat the process for your unhappiness islands.
We devote much less than 80% of our attention to the 20% of relationships and activities that are responsible for 80% of our happiness and success. Your basic objective should be to increase the 20% of time spent on these by as much as possible.
The 80/20 Principle can be applied to nearly all facets of life…
👉 80% of your revenue is coming from 20% of your sales team
👉 80% of your profits are coming from 20% of your services
👉 80% of your happiness is coming from 20% of your relationships
👉 80% of your stress is coming from 20% of your inputs
Go ahead and try it:
- Whenever something has become complex, simplify it; if you cannot, eliminate it.
- Identify where most of your happiness is coming from, and double down
- Identify where most of your profits are coming from, and double down
- Identify your most valuable relationships, and double down
See you all next Thursday 👋
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