How to make the 80:20 rule work for you

Oct 11, 2022 | Strategy

Although many people have heard of this ‘rule’ very few accountants consciously think about how applying the rule could help them and their clients.

The 80:20 rule is also known as the ‘Pareto principle’, the ‘law of the vital few’ and the ‘principle of factor scarcity’.

Simply stated, the ‘rule’ suggests that for many activities, 80% of the effect comes from 20% of the causes.

Another way of putting this is that 20% of what businesses (and individuals) do generates about 80% of the positive results.

The percentages are not fixed; they are simply indicative of the fact that when you examine what is going on in your practice or your life more generally, you will often find that a small proportion of your activities have a disproportionate impact as compared with all of the others.

I first read “The 80:20 principle”, written by Richard Koch, in 1996. In the book he explains how we might benefit from recognising how often this counter-intuitive principle impacts our business lives. I have often returned to the book for inspiration. Even more often though I raise the idea during mentoring sessions.

Often it becomes clear that up to around 80% of time and effort is not generating a commensurate return on the investment. The challenge is to figure out which activities are the ones that are really important or which produce the most positive results and to focus on these.

It’s always a relief when a client states that our regular sessions are definitely within their 20% zone! Often it seems that the insights and guidance they have taken from our conversations help them to prioritise more effectively, to feel on top of things and to ensure they are more focused.

How might you apply the 80:20 principle?

  • Identify those 20% of clients who generate 80% of your profits and focus your attention on them rather than on the 80% of clients that take most time but only contribute about 20% of the profits;
  • Allocate more resources to those 20% of your activities that generate the highest margin, rather than the 80% of activities that contribute much less – and take more time;
  • Focus on those (20% of your) Networking activities that you most enjoy and which have the most prospect of generating worthwhile referrals, and stop wasting time by attending the other 80%;
  • Devote more time to reading the 20% of accounting and tax news that is immediately useful and relevant as compared to the 80% of magazines, papers, emails and website feeds that are simply ‘interesting’;**
  • Keep in mind that there is often a ‘vital few’ as compared with the ‘trivial many’;
  • Help clients to appreciate the importance of the 80:20 concept to their own businesses.

** NB: It was partly this idea of curating your weekly tax news that led to the weekly tax tips published by the Tax Advice Network. Their weekly email simply contains timely, practical and commercial advice re at least 3 key points of immediate relevance and interest to accountants in general practice. No wonder so many subscribers renew year after year. Try it now, no charge >>>

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