Books Personal Development By Virtually Nomadic / July 17, 2014 Understanding the things which make your business earn money and which items are losing you money is very important to the success of your business venture. This seems obvious at first glance, but is a common mistake I was once guilty of and witness continuously within unproductive businesses. Spending a huge chunk of your time on £10 activities at the expense of £500 activities is a common mistake business owners make. Applying the very straightforward 80/20 principle to my business activities produced results I never thought possible and should be applied to all businesses. There’s also no need to stop there, 80/20 is also as equally effective in all areas of life. So What is the 80/20 Principle? It was discovered by the Italian economist Vilfredo Pareto in 1897 while looking at the at wealth patterns in 19th Century England. He was astonished by his findings, which showed a clear discrepancy between the wealth of a very small minority. He discovered that just 20 percent of the population enjoyed 80 percent of the wealth. It’s not the strict numbers that he focused on, but generally the key point that the distribution of wealth across the population was predictably skewed. In a broader sense, the principle can be simplified as “an inbuilt imbalance between causes and results, inputs and outputs, and efforts and rewards”. What can it do for your business? In businesses of all types and sizes, the 80/20 principle has been validated with 20 percent of products usually accounting for 80 percent of sales or 20 percent of customers accounting for 80 percent of all orders. The 80/20 principle will affect each and every part of your business as shown in the following sections. Managing Expenses Business expenses can easily spiral out of control if not managed properly. Applying the 80/20 principle will allow you to get a better understanding of where your money is going. Wondering how? Well, if you analyse your expenses, you will discover that you are spending 80 percent of your money on 20 percent of lie items. Focus on reducing this 20 percent and you will see a corresponding decrease in your overall expenses, with little time and effort expended. Business Forecasts If you study your and other businesses closely, you will discover that most business owners spend more time working in their business than on their business. Using fancy models and historical data to forecast your future business growth would only take you so far. The 80/20 principle will tell you exactly which products are selling and which customers are buying them. It will therefore give you exactly the trajectory of the growth of your company is taking, and which product or service to keep promoting. Increasing Sales As the principle goes, 20 percent of your products are responsible for 80 percent of your sales. If you give priority to these products in allocating marketing resources and shelf space, then you are guaranteed your sales will grow. However, you should bear in mind that these products could be at their peak and therefore, there is a need to find the next top selling 20 percent within the other 80 percent and so on. 80/20 Principle in Personal Life As much as the 80/20 principle is an important business tool, it also has a place in your personal life, from helping you to manage your personal finances to helping you do more with less. In order to make your life better and easier, you can apply the 80/20 principle to spend your time on activities which bring the most satisfaction. Physical Fitness If one of your goals is getting physically fit for example, you can apply the 80/20 principle because according to it, 80 percent of your weight loss or muscle gain (whatever the case may be) is a result of only 20 percent of your activities. Identifying these little actions will mean you will achieve your ideal state faster and with less effort. A good example of this would be to consider HIT training rather than lower intensity training. Happiness 20 percent of your failings will bring 80 percent of your misery or unhappiness. The reverse is also true, that 20 percent of all the things you do with your time produces 80 percent of the things you love about your life. Also avoiding the 20 percent of your fears will eliminate 80 percent of your unhappiness. Just imagine how powerful it would be to apply the 80/20 principle to your life starting today. Applying 80/20 to my personal life and activities was one of the leading factors in becoming a digital nomad. I now spend more time doing the things I want and have removed the time-consuming activities that wasted my valuable free time. Personal relationships Personal relationships are also not immune to the influences of the 80/20 rule. As a matter of interest, take a look at your Facebook friends list. If you apply 80/20 to your friendships, you should soon realize that you spend 80 percent of your time speaking to 20 percent of your Facebook friends. Prioritizing the 20 percent of friends who give you 80 percent of your happiness is the way to live your life. The other side of the coin is equally true (the 80/20 rule does not discriminate) you will realise 80 percent of your relationships problems stem from just 20 percent of your relationships, doubt me? Just do a quick check and you will be amazed by what you discover. As with any other area of the 80/20 rule, remove the elements (people) that create negatives. Getting rid of clutter Being a practicing minimalist, this one is very straightforward. For example, when it comes to creating a conducive or clutter-0.free home environment, you will also discover you wear 20 percent of your clothes 80 percent of the time. Or maybe your kids play with 20 percent of their toys 80 percent of the time (therefore, do you really need all those toys or all the clothes in your wardrobe, or even shoes?). Once you really start applying the 80/20 principle you will start to see it everywhere. The important takeaway is that only a small number of all the “stuff” we own is used very often, so to declutter your life you need to identify this small number and ditch the rest. Personal Development I am a very big believer in this. When it comes to focusing on personal development and what you want to do with your life, you should focus on your strengths. This is for the simple reason that 20 percent of your skills result in 80 percent of your returns. The ideal thing is to identify these key skills and spend more time honing and develop them, instead of wasting time on tasks bringing low returns. You become more effective by doing the things you are really good at, even better. Income generation This has been and continues to be one of the most influential business strategies I have ever applied. Concentrate on the 20 percent income sources generating 80 percent of your income. If you are involved in various activities bringing you extra income, you can apply the 80/20 principle to find out which activities are generating the bulk of your income. Again, this is with a view to eliminate activities which are costing you in terms of time for low returns, and focus on the income streams bringing in the bacon, so to speak. Unless these income streams are passive, identify the least productive income sources and eliminate them. I can go on and on about how the 80/20 principle touches every single aspect of your life with detailed examples, but that is not going to do you much good. However, what is going to work is for you is to pick an area you would want to improve using the 80/20 principle, such as your finances for example, and then put it to work. This will be helpful because you will personally experience the principle at work, further cementing your belief in it. You also get valuable experience which will allow you to apply it to more and more areas of your personal and business life. Go on, take the challenge and before long you will be applying 80/20 without even realising.