From the course: Economic Tips for Everyone
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Economics and the 80/20 rule
From the course: Economic Tips for Everyone
Economics and the 80/20 rule
- Have you ever heard that 80% of your business comes from 20% of your sales? Well, it's not just a saying, it's actually an economic theory and it applies to a lot of different areas of business. Academic economists call this the Pareto principle, and it's named after an Italian economist, who in the late 1800s, observed that 80% of the land in Italy was owned by 20% of the people. Business people call this the 80/20 rule, and you often hear it applied to sales. For example, some people say that 80% of their sales come from 20% of their clients, and others say that 80% of their sales problems come from 20% of their clients. So obviously the 80/20 rule isn't always exact or precise, and sometimes the data will refute it entirely. But the 80/20 rule is something that economists call being directionally correct. That means that it can give you some insights, especially if you have data, into what good strategic decisions…
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