What Is the 80-20 Rule? The Pareto Principle explained

If you work in sales, have you ever noticed that 80% of a business's sales come from just 20% of customers? Or that 80% of the work is done by 20% of people? Or maybe that 80% of customer service issues arise from 20% of customers? It turns out this is a well documented phenomenon that occurs not just in business, but in nature. It's called the Pareto Principle. Where the heck does it come from and what does it mean? It all started with this dude, Italian economist Vilfredo Pareto. Pareto first noticed the 8020 connection in regard to real estate, specifically that 80% of the land in Italy was owned by 20% of the population. Over time this morphed into a broader rule. In many events and scenarios, roughly 80% of the effects are a result of 20% of the causes. Over the years it's blown up, it's been used to describe everything from global income distribution to sports training regimens to healthcare. It's everywhere. 80% of writing and speech is 20% of words. People wear 20% of their clothes 80% of the time. It's even been boiled down to a formula for use in mathematics, which I didn't understand at all. So back to sales. As I mentioned, it often turns out to be the case that 80% of a business's sales volume is generated by 20% of its customer base. In other words, most businesses have dedicated base of superfans who hold up the bottom line. Why is this so important? Because it opens the door to tap into an underutilized asset, your existing customers. You have the opportunity to turn many customers into 20 percenters. Whether that be through loyalty programs or customer advocacy, moments of delight or VIP perks. Think about how airlines offer miles programs that are extremely helpful to their most frequent customers. Or how popular drivers on apps like Uber or Lyft get the badges and certifications for great service over time. Even a punch card at your local deli is an example of how you can give something back to your most loyal customers and in turn get them excited about returning to your business and spending more money. So if you're part of the 20% of people who watched 80% of this video, here's some advice. Next time you want to win more business without winning more customers, take a look at how Your most loyal 20% can help you get the job done.