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# Video:How the 80/20 Rule Can be Useful

with Jonathan Stewart

The 80/20 is a business theory that applies to many management factors. Learn to maximize efficiency by understanding using the age-old 80/20 rule, also known as the Pareto principle.See Transcript

## Transcript:How the 80/20 Rule Can be Useful

Entrepreneurs are the visionaries who are always uncovering ways to succeed. Many have turned to the 80/20 rule to guide them because they believe it can yield remarkable results, when applied correctly, of course. But first things first, what is the 80/20 rule and what do you do with it?

### The 80/20 Is Also Known as the Pareto Principle

The 80/20 rule has been around for over a hundred years. In 1906, Italian economist Vilfredo Pareto observed that 80% of the land in Italy was owned by 20% of the people. This observation, known as the Pareto Principle, has, over time, morphed into the general idea that, in business 80% of sales come from 20% of the customers.So then 80% of sales... plus 20% of customers... then carry the one, hmm. In the end, it’s not really about the numbers as much as it is about the principle. Which may be a relief if you really didn’t pay that much attention in math class.

### The 80/20 is Represented in Many Aspect of Business

The 80/20 rule can be also applied to other aspects of business. For example, 80% of sales are made by 20% of your staff, 80% of profits come from 20% of the time you spend, and 80% of complaints come from 20% of your customers. The exact percentages are not important, but recognizing the imbalance is. If you get most of your results by something you do only a small percentage of the time, it’s better to focus on the activities that produce these results... rather than on activities that waste time.

### The Pareto Chart Pinpoints Business Data According to the 80/20 Rule

That all sounds well and good, but sometimes it can be difficult to see the forest for the trees. There’s not always an easy way to figure out what’s working and what isn’t. Luckily, the Pareto Principle also has a corresponding Pareto Chart. A Pareto chart is a type of bar graph that can be used to measure data in a way that pinpoints which areas of a business may need the most attention. Identifying problems and their causes in order to prioritize actions is a particularly good use of a Pareto chart. From there, it can be easier to develop your target activities that will yield the most return.

So whether you look at it as a number or a real strategy, the main thing to remember about the 80/20 rule is that it’s a guideline designed to help you spend more time being productive, and less time playing Angry Birds or checking to see who's written on your wall.I'm Jonathon Stewart with About.com
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