This site is, in many ways, a tribute to the Italian economist Vilfredo Pareto.

In the late 1800s, Pareto discovered that 80% of the land in his home country was owned by 20% of the population. Pareto was also an avid gardener, and observed that 20% of the peapods in his garden yielded 80% of the peas that were harvested. Such observations gave rise to a powerful theory: the Pareto Principle or the 80/20 Rule.

The Pareto Principle is perhaps most famous for its suggestion that successful people tend to achieve 80% of their results from only 20% of their efforts. The pattern is remarkably consistent in all walks of life and fields of endeavor. However, this rule is particularly critical to us because it also applies to customer relationships. Indeed, research consistently suggests that 20% of one’s customers will generate 80% of one’s sales, and the same holds true for profits.

Customer analysis and segmentation are so important because they enable us to identify the 20% (or 10% or 30% -- it’s the imbalance that is relevant) that is having a disproportionate impact on results. We can then focus our resources on these “vital few,” as management theorist Joseph Juran would call them, to obtain maximum returns.

“The reason that the 80/20 Principle is so valuable is that it is counterintuitive,” writes Richard Koch in his book dedicated to the subject. “We tend to expect that all causes will have roughly the same significance. That all customers are equally valuable.”

Koch goes on to point out that modern financiers are quite skilled at analyzing anomalies – say, between exchange rates – and shifting economic resources to areas that promise a higher yield. However, organizations and individuals tend to be very poor at this sort of arbitrage.

Why not focus on the 20% of customers that represent the overwhelming percentage of opportunities? As Koch puts it, “Companies rarely ask these questions, perhaps because to answer them would mean very radical action: to stop doing four-fifths of what you are doing is not a trivial change.”

In other words, Vilfredo can lead us to his garden, but he can’t make us eat.