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“The Pareto principle … states that, for many events, roughly 80% of the effects come from 20% of the causes.”
- Pareto Principle
While this makes a great sound bite, it’s hard to pin down exactly where the Pareto Principle should be applied - and where it shouldn’t. The definition is loose enough (“for many events”) that it can be - and frequently is -applied to whatever situation a writer or speaker desires.
As with many “facts”, it’s easy for “experts” to trot it out as common knowledge, without providing any demonstration of how it relates to the case under discussion. If you’re trying to streamline your work-day and boost your income, you might have come across authors telling you “facts” like these:
Whenever you see the Pareto principle cited, ask yourself “Is this true?” I’d argue that, “for many events”, it just isn’t – don’t believe everything you read. Examine your own history of similar situations to see if the 80/20 rule is contradicted by your experience - in my freelance work, I’ve often seen instances where the Pareto principle doesn’t hold. I’ll give you the figures for each of these three claims in turn, so you can see how the clients/output/time to income ratio works for me.
80% of income from 20% of clients?
In my freelance writing, I currently have the following clients:
Total monthly income from freelance writing: approx $1,224.
So, does the Pareto principle hold true for my freelance writing? Does 80% of my income come from 20% of my clients? There are indeed 3 main clients out of the 5 which make up 90% of my income from freelance writing, and just based on this information, we might conclude that we see the Pareto principle at work here.
If we accept the advice that we should focus our efforts on the clients that provide the most income and fire the rest, it may appear that I should focus my efforts on clients A, B and E and fire C and D.
This analysis however misses some important details: client C and D require me to produce less, take up correspondingly less time, and may be in a position to take extra work from me in future. Dropping the two of them because some expert told me “the Pareto principle says so” would be a bad idea, and close the door on potential future income.
It is possible, however, that even if Pareto shouldn’t be applied on a client level, perhaps some of the freelance work I do is more lucrative than the rest.
80% of income from 20% of output?
If I divide up my monthly writing income by what I’m paid per piece, the figures also appear, at first, to come close to fitting the 80/20 rule: My four blog clients pay an average of $40 per article, and I’m writing a total of 23 blog articles per month. I do have one “big” client, though, where my pay per article is seven times my average pay for a regular blog article: my magazine client, who pays $284 per article.
This means that 5% of my writing outputs produces 23% of my income. This definitely comes closer to what the Pareto principle predicts – especially as many people say that the 80/20 figures can be adjusted to suit. The easy conclusion to draw from this analysis is if I could write five magazine articles per month, I could replace my other income streams entirely.
But now, I haven’t taken into account the fact that the magazine article takes at least four times as long to research and write as a blog article. Nor have I accounted for the time spent in acquiring new magazine clients (I sent out a lot of queries a month or two ago, and didn’t manage to get a single article commission).
Why chase new clients you ask, why not just write more articles for the client you already have? My current magazine client doesn’t want five times as many articles from me.
Pareto might hold true on the surface, but looking at just the outputs ignores the time factor: how long I spend researching and writing each piece, how long I spend on administration, and the amount of time required to acquire the client. It further ignores market considerations (how many articles I can sell to one publication).
As the above discussion shows, just looking at outputs is misleading because such an analysis ignores the amount of time spent to produce each output. This then leads to the following question - if we are saying the Pareto principle is misapplied when judging solely by the quantity of writing outputs produced, does it hold for time to produce those outputs instead?
80% of income from 20% of time?
So perhaps I should be looking at whether I can produce 80% of my income in just 20% of my working day. Is 80% of my time wasted, and does the other 20% of my time produce most of my income?
Unfortunately, the answer here is again a clear “no”. I kept a detailed time log for a couple of weeks last month, and found that I averaged:
The figures were fairly consistent across the different blogs, and though some activities do not directly produce income (such as answering comments), I consider them a part of the job of producing a blog post, and further recognize that good communication with a blog editor and readers is a point in my favor when an editor is considering keeping me on.
Of course, some of my day was spent in activities like checking and answering emails and reading RSS feeds, but these sorts of tasks typically take up 20 - 30% of my work day - not 80%. On the whole, based on these three examples, the Pareto principle does not hold true, in any meaningful way, for my freelancing.
Why Pareto Doesn’t Work For Effective People
The Pareto principle often gets cited as a convenient shorthand for cutting down on time-wasting activity, spending, or unproven marketing, and for focusing on what’s truly important. This is good advice, but it doesn’t need to be tied to particular numbers. It’s also not very useful if you’re already working effectively.
For example, if you’ve outsourced your time-consuming administrative tasks in order to focus on what you can excel at, then you’ll probably find that 20% of your work time produces 20% of your income and 80% of your work time produces 80% of your income… which you can’t improve on! In cases when a system (and that system could just be “you going about your workday”) is working effectively, it could be actively harmful to start trying to obsessively tweak it.
If you start searching for that mythical 20% that should be delivering 80% of your results, then you might find yourself cutting out activities which are actually essential to your success. Some of these may seem insignificant if you’re just looking at how much money is coming in, but are important in the long-term:
I’m sure you can think of dozens more examples. In certain cases, it’s very hard to pin down exactly which actions may result in a sale, a new client, or a “eureka” moment down the road - so don’t become focused on optimizing everything at all costs.
Rather than using the Pareto principle as a hard-and-fast rule, use it as a reminder to take stock once in a while. Look at what you’re doing over the course of a day – keeping a time log can help you to do this accurately – and consider where your time is being spent ineffectively.
Your Experience With the Pareto Principle
Do you have a great example of the Pareto principle in action, in your own life or business? Did you really discover that 20% of your clients provided 80% of your income? Or do you find in certain situations you are working effectively enough that Pareto doesn’t apply?
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I think the Pareto principle is more widely applicable when applied to larger groups of people, perhaps a firm, or a city, or a nation, for example - there will certainly be people (like yourself) who "defy" the rule - but when looking at the law of large numbers, I think you will find it to be a generally accepted principle for economic behavior - where 20% of the people produce 80% of the output in a society.
Taking the principle to a micro level means, if you are average, you could fall somewhere in those lines...
This is a really good article, Ali. I agree that the Pareto principle has its place and is sometimes spot on. Other times it is not accurate, but makes a point, or worse, misleads. The key, as Milena points out above, is finding the right situation/group/organization to analyze.
I think in the first example you give that what you are seeing does fit the principle.
From what I read you only should fire C and D jobs IF they are the most time consuming for the least value. Their value is measured in more than just current income, for a self employed person like yourself their potential future opportunites also have value. You also stated that they are proportionally less time consuming than your A, B and C jobs.
You have a good point though, no "business rules" like this or any others should be blindly followed without careful thought if the honing is needed.
Like all "conventional wisdom," the Pareto Principle should be taken with a grain of salt. Is the rule going to apply in all cases, for all people? Of course not. However, I'd say "productive types" have (consciously or unconsciously) eliminated a lot of the distractions and waste that plague "nonproductive types."
I consider myself a "productive person" but did notice an increase in effectiveness during my work when I kept to the Pareto Principle (thought I didn't break it down to the specifics like you did.)
GOT SOMETHING TO SAY?