What is the Pareto Principle

What is the Pareto Principle explains the meaning of the principle and the general application of the principle in marketing.


What is The Pareto Principle

The Pareto principle (also known as the 80-20 rule or the law of the vital few) implies that, for many happenings, roughly 80 percent of the effects come from 20 percent of the causes. Business management thinker Joseph M. Juran put forward the principle and named it after Italian economist Vilfredo Pareto, who noticed in 1906 that 80 percent of the land in Italy was owned by 20 percent of the people; he developed the principle by noting that 20 percent of the pea pods in his garden contained 80 percent of the peas. It is a common rule of thumb in the business world; that "80 percent of sales come from 20 percent of the customers."

The original observation was in association with the distribution of income and wealth. Pareto noticed that 80 percent of Italy's wealth was owned by 20 percent of the people. He then carried out surveys in a variety of other countries and discovered to his surprise that a similar distribution rate applied.

You must keep in mind that The Pareto Principle is an observation not a law. Moreover, it is an observation that most things in life are not distributed evenly.

In short, The Pareto Principle suggests that each unit of work or time does not contribute the same output.

Therefore, The Pareto Principle re-inforces the observation that the majority of results come from the minority of inputs.

For example, 20 percent of workers contribute 80 percent of the results or 20 percent of clients contribute 80 percent of revenue or 20 percent of customers purchase 80 percent of merchandize.


The Pareto Principle in Marketing

If The Pareto Principle suggests that 80 percent of the results come from 20 percent of the contributors, then you need to focus on the 20 percent because that is where 80 percent of your revenue will be generated.

Therefore, you should allocate 80 percent of your time, resources and effort on the important 20 percent.

For example, in marketing you need to recognize where your revenue is generated and you need to spend 80 percent of your time, resources and effort focuses on that.

As someone said, "See what activities generate the most results and give them your appropriate attention.

Finally, The Pareto Principle is an observation not a decree or a law.



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