How you can Improve your Income with the Working Power of the Pareto Principle
You can maximise your Income generation potential (or at least stay within the range of profit) in any money-making activity you are engaged in, no matter how small or large, using the Pareto principle which ensures that you invest the smallest time, energy and resources; to get maximum benefit in terms of profit.
The Pareto Principle or the 80-20 rule (also referred to as, "the law of the vital few" or "the principle of factor sparsity") states that; For many events, roughly 80% of the Effects come from 20% of the Causes.
The law was suggested by Joseph M. Juran who gave credit to Vilfred Pareto for postulating in 1906 that, 80% of the land in Italy was owned by 20% of the population and 20% of the pea pods in his garden were responsible for producing 80% of the entire peas.
But how can this law be applicable to your everyday business activities and Income Generation? This will be simplified in its impact on the Italian society and application in Business and Politics.
A Pie Chart illustration of The Pareto Principle
The Pareto Principle Mimicry in the Italian Society
One common Phenomenon in buying and selling process in Italy, is the popping up of Saldi (on sale) at specific periods of the year. Sometimes the rate of discount could be so outrageous that you are left to wonder if traders are not trading at a loss. For example, an Item with an initial cost prize of €100 could sell for just €20. You see consumers waiting for products to be put on discount before stocking their homes. You are left to wonder if the people are not trading at a loss.
A study of the 80-20 Rule revealed how a people have mastered a trading tactic that keeps them within profit margin while they give out some discounts. This Formula is also applicable to the calculation of daily output in production process. Here, Entrepreneurs can use this rule as a Buffer in situations that would have led to Wastage or loss.
Get a copy of your own 80/20 principle and unlock the secret of achieving more, working less.
Application to Business
The principle can create an effective and conducive business environment. It can also help to manage time and utilise the most effective work force for maximum output. The Business application of the principle is as summarised below,
• 80% Profit from 20% of your Customers
• 80% Complains from 20% Customers
• 80% Profit from 20% of the time invested
• 80% Profit from 20% of your products
• 80% production from 20% of your work force.
How does this Interprets if you are a part-time worker like an online publisher? It will help to maximise your profit from only a few part of your activities. That is, you could use the smallest time to research and write the best content possible to generate maximum profit.
Taxing policy and the 80/20 Rule
The Concept of "advantageous few" (the 20% of the population who controlled 80% of the wealth) and the "trivial many" (the other 80% of the population) has also found favour in recent politics of Taxing System.
The Administration of president Obama of the United State of America, believe that the Tax Burden on the middle class is already enormous that those who has plenty (the rich and wealthy) should be made to pay more. Coincidentally, they make up a minute portion of the society. The president may not be conscious of the principle, but it shows that, there is a reasonable Logic that is applicable to different facets.
Application to locally made products in developing countries
Pareto Principle is also applicable to the production process of making a locally consumed product in Nigeria, called Foofoo. There is a Nigerian Postulation thus, "using 50,000 Naira to purchase Cassava; two employees for making, processing and sales with 10,000 Naira salary for each, mathematical model (for real life situation) will show that, input should be of value of 15-25% and output gain of 75% to 80%. Thus bringing us to the conclusion that, the Model is effective."
He further stated that, in applying this rule or principle; you should put in mind that, for you to succeed greatly, you must always focus your time and energy on the few activities i.e the 20% of the activities. Your ability to keep this focus will eventually move you up to advantages and progress in any business of your choice.
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