In 1906, Pareto observed that 80 percent of Italy's land was owned by just 20 percent of the population. He later discovered that this ratio could be applied to other parts of life as well, such as gardening: 80 percent of his peas were produced by 20 percent of the pea pods. Because of its universality, this concept came to be known as the "Pareto Principle" or the "The 80/20 Principle."
The value of the 80/20 Principle for a business is this: by continually applying the principle to the lineage of your revenues, discovery of the most profitable products, services and activities will emerge.
Key 80/20 Principle questions:
- Does 20 percent of your sales force produce 80 percent of revenues?
- Do 20 percent of your products account for 80 percent of product sales?
- Do 80 percent of your visitors see only 20 percent of your Web site pages?
- Do 80 percent of delays arise from 20 percent of the possible causes of delay?
- Do 80 percent of customer complaints arise from 20 percent of your products or services?