The Pareto Principle Or 80/20 Rule

I think I first came across the 80/20 principle, originally referred to as the Pareto Principle, when I used to work for a major British credit card company.

Much has been written about this principle, and I once bought and read a book called “The 80/20 Principle: The Secret to Achieving More with Less” by Richard Koch (because the Internet wasn’t a thing back in those days so books were the only real way to learn more).

This article explains what this principle is (and is not), and how you can make use of it to be more productive and successful.

What Is The Pareto Principle?

Put simply, it stems from an observation by Vilfredo Pareto, a nineteenth century Italian economist, that approximately 80% of the land in Italy was owned by only 20% of the population.

It was a management consultant, Joseph Juran, who later named the principle, which is alternatively known as the 80/20 Rule, the Law Of The Vital Few, or the Principle Of Factor Sparsity, after Pareto.

In broad terms, the principle states that approximately 80% of the effects come from just 20% of the cause.

For example:

• 80% of a company’s profits may come from only 20% of its customers.
• 80% of customers only use 20% of the features of software applications.

How Can You Use The Pareto Principle?

One way is to use it to determine where best to spend your time and effort.

There is an oft-cited case study from Microsoft, where they discovered that fixing 20% of the most commonly reported bugs actually fixed around 80% of all bugs and crashes.

OK, so what else?

Well, suppose that you have found ten articles relating to a subject you are studying.

You can either spend a lot of time reading them all in detail, only to find that most of them are not that great, or, you can skim read them all in just a few minutes, and then go back and read only the ones that seem most relevant in more detail.

Or, you can use this principle to make sure you are giving the best support to the customers who make you the most money.

At the company I used to work for, they had a smallish but dedicated team who looked after a group of customers who provided a lot of transaction volume.

While these companies didn’t bring in a lot of profit themselves, because they were huge national organizations that negotiated extremely low rates, what they did do, with the immense transaction volume they provided, was keep costs down for all of the customers – including the mom and pop stores. (This was all to do with the balance between fixed costs and variable costs.)

Giving one-on-one support to those customers (instead of having them call a generic customer service call centre like other customers had to) made sense when looking at the needs of the business as a whole.

Adopting this principle is also a way to curb your desire for perfection. Perfectionism can sound like a worthy goal, but it’s almost always unachievable – and one of the methods you can use to avoid falling into the trap of spending too much time and effort and maybe even money seeking the perfect result is to recognize when good enough is good enough.

The Pareto Principle can help remind you that you are likely to achieve most of your benefits from relatively little work – and chasing those final 20% of the benefits may cost you 80% of the overall effort and cost (the so-called Law Of Diminishing Returns).

On a more personal note, I bet if you check how many apps are installed on your smartphone, you’ll find that you use one fifth of them about four fifths of the time.

That means you could probably free up a lot of space and help optimize your phone’s performance by uninstalling apps you almost never use.

Caveats

The Pareto Principle is useful in many situations, but there are a few additional things you need to be aware of:

1. The Pareto Principle is an observation of how the world appears to work – it’s not some sort of inviolable law.
2. The numbers may not always be exactly 80/20, of course, but the unequal ratio remains common (e.g. it may be 90/10).
3. In fact, the numbers don’t even need to add up to 100 – it’s the disparity of inputs and outputs that is relevant.
4. Just because you can obtain 80% of the benefits from only 20% of the effort does not necessarily mean you don’t need to do the remaining 80% of the work.

Conclusion

The Pareto Principle can be a great way to focus your efforts on the areas where the greatest benefits are likely to accrue, and this applies both to your business life and your personal life.

This is because you not only need to do things right, but you also need to do the right things – and that’s where the 80/20 Rule can help.

There is a quote I came across about 20 years ago, that says “Effective management without effective leadership is like straightening deck chairs on the Titanic.” (I think this was said by Stephen Covey, author of “The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change“.)

Yes, you might have had deck chairs that were all neatly organized, but it was time ill spent given that the ship was about to sink.

And the more you take a look at your behaviours, and those of people you know (e.g. at work, your friends, your family), the more you’ll recognize that, consciously or not, the Pareto Principle is at work.

Just remember – the primary message about this principle is that things in life are not always (or maybe rarely) distributed evenly. Sometimes you get a lot of benefit for the effort you put in, and sometimes it’s the other way around. (And, of course, sometimes it is a 1:1 ratio.)

So the key is to work out what’s most important and dedicate your time and effort there, but not necessarily to the exclusion of all else, because sometimes those other less profitable activities still need to be done.

Finally, coming back to the book I mentioned in the introduction, my conclusion was that the principle itself is interesting – but the author should have followed the principle himself. In other words, 80% of the benefits of the book came from only 20% of it, which means the book could probably have been more like 67 pages instead of the 336 pages it actually is. 🙂

There are many other books on this subject, but my suspicion is that many of them will suffer from the same problem – a great idea described using far too many words.

Additional Resources

These are suggestions for those who wish to delve deeper into any of the above:

1. 7 Habits Of Highly Effective People
2. The 80/20 Principle