The Pareto Principle, originally attributed to an Italian economist, Vilfredo Pareto, to describe the unequal distribution of wealth has come to also be known as, "The 80/20 Rule". To summarize, the 80/20 rule in its broadest sense distinguishes the "vital few from the insignificant many". Technically speaking, the 80/20 rule suggests that approximately 80% of a collection of outcomes (the "y's") are associated with 20% of the members of a particular set (the "x's").The implications of the pareto principle are extensive, and it is one of the most useful business and management tools available. Pareto analysis enables us to focus on the 'vital few' elements that will have the greatest impact on our business instead of wasting time on the "insignificant many" that won't take us as far. Pareto analysis allows us to objectively determine what "critical x's" or root causes are really driving those "essential y's" such as profits, complaints, defects or other key business outcomes as opposed to what we think we know or are told by "experts".

How can Pareto analysis can help entrepreneurs drive better business results? Some ideas to consider:

• Drivers of client attrition
• Attributes of best or worst clients
• Time-wasters in your day
• Product or service fulfillment errors

Virtually anything business outcome can be evaluated by pareto analysis. Simply choose an result that interests you , brainstorm possible drivers, and start looking through your data, tallying up the elements that fall into each category.

This simple analysis, called a frequency table can give you insights that you may have never considered before. By sorting the frequency table in descending order, you begin to see the "vital few" elements that are having the most substantial impact on the result or outcome that interests you. Finally, an additional calculation brings the Pareto Principle into full view. For each element that you are tracking, calculate the cumulative percent of total that the element represents. For example, in a sample of 10 observations, Element A may account for 4 of the ten, or 40%. Element B may have 3, thus making the cumulative impact of Elements A and B 70% of the total outcomes. If you were to have three or four more Elements of interest, each with a count of one or two, which of the Elements do you think you should focus on first, the two Elements that account for 70% of the outcomes or the onsie-twosies that don't really have much impact at all?

Case Study: Here is an real world example of how the powerful pareto has helped a business owner achieve better business results. This entrepreneur, a service professional, in private and solo practice has used pareto analysis to objectively identify and stratify best to worst clients based on the explicitly defined criteria.

For this entrepreneur, referrals and regular, recurring appointments are critical success factors. By identifying the clients that are actively referring new clients and/or regularly booking appointments, the business owner was able to determine the "vital few" clients that are having the most impact on the bottom line. As a result, the business owner was able to act on the information and not spend time trying to revive or rescue the "insignificant many" clients that were doing nothing for the business.

Another asset of pareto analysis is that it can be used iteratively. This same client, used pareto analysis to take a deeper dive into understanding the "A-List" clients. The demographic attributes of this group of clients such as age range, gender, and occupation, has given the entrepreneur tremendous clarity into not only what makes a client a great client, but also, what kind of person is most likely to be a great client! As a result, instead of making a decision simply because an opportunity is presented, opportunities are evaluated and decided based on their ability to provide access to the specific types of people who are likely to be great clients.

Pareto analysis is a powerful yet easy-to-understand tool for understanding key business drivers and supports objective decision-making. Whatever your business, whatever results are most important for you, take advantage of the pareto to distinguish the "vital few" from the "insignificant many" variables that are part of your business.

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