Hard work rarely pays off if you don’t know how to work in a smart way. The Pareto principle, frequently referred to as the 80/20 rule, is one of the best guidelines you can use in order to concentrate your efforts effectively. Simply put, this principle means that roughly 80% of the consequences come from 20% of the causes.
In the following article you will see examples for this principle in various situations, understand the logic behind it, and learn how to take advantage of it in order to maximize your efficiency.
Examples for the 80/20 rule in life
This principle has been observed in numerous scenarios:
- Vilfredo Pareto, the Italian economist after which this principle is named, first observed that 80% of the wealth is owned by 20% of the population.
- A study which analyzed shopping patterns at convenience stores found that approximately 20% of the customers account for 80% of the stores’ sales.
- A study on software engineering found that 20% of the modules cause 80% of the operational faults.
Note that in these and in other cases, there was sometimes variability regarding the exact distribution which was found, so that sometimes there was a 70/30 distribution, or a 90/10 distribution, and so on. However, the exact distribution doesn’t matter; the important thing to remember is that a small portion of the causes will generally be responsible for a large portion of the outcomes.
Scientific basis for the 80/20 rule
The 80/20 rule exists because many natural distributions follow power laws. This means that there is a functional relationship between two quantities, where a linear change in one quantity leads to an exponential change in the other quantity. For example, if you double the length of the sides of a square, its area increases by a factor of four.
Lets assume that this graph shows the portion of the wealth in a nation on the vertical y-axis, and the number of people who own it on the horizontal x-axis. This means that on the left of the distribution we have what Pareto referred to as the Vital Few, who are the 20% of the people that own 80% of the wealth, while on the right we have the long tail with the Trivial Many, who are the remaining 80% of the people who own only 20% of the wealth.
How to implement the 80/20 rule
The goal of this rule is to optimize your return on investment (ROI), or the benefits that you receive in return for the effort that you make.
First of all, this means that you should focus your efforts on the 20% of the work that leads to 80% of the positive outcomes:
- If you’re running a business, focus on working with the 20% of the customers who generate 80% of the revenue.
- If you’re studying for a test, focus on the 20% of the material which accounts for 80% of the questions.
- If you’re developing a software product, focus on the 20% of the features that are important to 80% of the users.
Conversely, take care of or avoid the 20% of the factors that cause 80% of the problems:
- Avoid working with the 20% of the customers who produce 80% of the complaints.
- Fix the 20% of the bugs which lead to 80% of the reports.
- Avoid the 20% of the exercises which cause 80% of the injuries.
Sometimes, there might be overlap between the few factors that provide the most benefits, and those that cause the most issues. In certain cases, what you should when this happens is relatively clear-cut. For example, if 20% of the material from the class will account for 80% of the questions on the test, you need to understand it even if this material causes 80% of your problems. On the other hand, in some cases the choice might not be so obvious. For example, if 20% of the customers generate 80% of your revenue but also 80% of your complaints, you will have to consider your priorities in this situation, and act accordingly.
Things to keep in mind
There are some things which you should keep in mind when implementing the 80/20 rule:
- Even within the top 20%/bottom 80%, not everyone will be equal.
- The 80/20 principle is a useful rule of thumb, but it’s still just a rule of thumb. It won’t always apply to your situation.
- As with any other guiding principle, when you do apply it, do so with common sense.
Iterate and reevaluate
If you’re engaging in a long-term process, don’t be afraid to reevaluate your situation periodically, and to adjust according to the 80/20 principle each time. Essentially, you should be asking yourself two questions:
- “How can I focus my efforts in a way that leads to the greatest benefits for the least amount of effort?”
- “What I can do to avoid the greatest amount of issues for the smallest loss in benefits?”
Summary and conclusions
- The 80/20 rule (also known as the ‘Pareto principle’), denotes that roughly 80% of the consequences come from 20% of the causes.
- This means, for example, that 20% of the customers are responsible for generating 80% of the revenue, and that 20% of the software bugs will be responsible for 80% of the user complaints.
- Use this principle to your advantage by focusing your efforts in the areas where they produce the most benefits, and by cutting out the things which cause the most issues.
- Keep in mind that the distribution might not always be an exact 80/20. The important thing to focus on is finding areas where a small proportion of the input accounts for a large proportion of the output.
- If you’re engaging in a long-term process, you should reevaluate your situation periodically, and reapply this principle accordingly each time.