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ACCOUNTING FOR THE PARETO PRINCIPLE 3: Small Business Applications

by ren on May 21st, 2008

The Pareto Priniciple (also called the 80% - 20% Rule)has been applied in a variety of fields & disciplines; e.g., business management, time management, management of sales people, project management, development economics, etc. Basically, the Pareto Principle states: in any endeavor, a 20% segment can explain the status of almost anything and can influence what can or will happen to the undertaking. The Pareto Principle has also been called the Rule of the Vital Few and the Trivial Many.

For small businesses, it is best if you consider the 20% as critical and the 80% as important (and not trivial items which can be handled haphazardly or, worse, ignored). While you can lose your business if you don’t manage the 20% effectively, the growth of your business depends on how well you do with the 80%.

Consider: the 80% who currently deliver 20% of the business, if you really take care of them, can be grown to be part of the 20% who deliver 80% of the business. A good source of business growth is not just more customers, but existing customers doing more business with you.

image from Microsoft Clipart

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POSTED IN: Accounting Concepts, Accounting for NonAccountants, Best Business Practices, Small Business Finance