Understanding the Pareto principle

The Pareto principle—also known as the 80/20 rule—states that roughly 80 percent of consequences come from 20 percent of causes. In other words, inputs and outputs are rarely balanced: a small share of effort, customers, or problems usually drives most of the results.

The principle has been observed and researched for more than a century, and it applies far beyond economics—to productivity, marketing, product strategy, and time management.

What is the Pareto principle?

The Pareto principle holds that 80 percent of consequences come from 20 percent of the causes, pointing to an unequal relationship between inputs and outputs. Applied to your work, it suggests you probably get about 80 percent of your productivity from 20 percent of your time.

It’s a principle rather than a rule because it isn’t a hard and fast law. Sometimes the split shifts—a greater share of the output might come from 40 percent of the input, for instance.

Example of the Pareto principle

The Pareto principle shows up across a broad range of situations, not just productivity. In a meeting with 10 people, chances are that 80 percent of the speaking comes from 2 attendees. If you’re in sales, 80 percent of your revenue likely comes from 20 percent of your customers.

Where does the Pareto principle come from?

The principle springs from the work of economist Vilfredo Pareto, who found that 80 percent of the property in his native Italy in the late 1800s was owned by 20 percent of the people. When Pareto tested his findings against other countries, the numbers stayed remarkably consistent. More than a century later, not much has changed—global wealth remains heavily concentrated in a small share of the population.

Pareto also extended the observation to his garden, where roughly 80 percent of the peas he harvested came from 20 percent of the pods.

Pareto didn’t coin the term Pareto principle, though. Management consultant Joseph Juran named it when he applied the observation to operations management. Juran noted that 80 percent of production problems could be traced to 20 percent of production methods—so fixing that 20 percent let companies lift production.

Juran developed methods for companies to focus on the “vital few” causes and set aside the “trivial many” to increase their chances of success.

Why is the Pareto principle important?

The Pareto principle is useful in fields from management to agriculture to healthcare. Applied to complex problems, it creates a starting point for action—for both positive and negative issues.

If a doctor knows that 80 percent of patients with a specific disease respond best to 20 percent of treatment options, they’ll start with those options to get good outcomes faster, then move to other options for the patients who don’t respond.

Likewise, if a software developer finds that 80 percent of her bugs come from 20 percent of her code, she knows exactly which portions to address first.

How do we use the Pareto principle in everyday life?

The principle applies to everyday choices—productivity, time management, even relationships. If 80 percent of your enjoyment comes from time with 20 percent of your friends, that’s a good signal to spend more time with those friends.

How to apply the 80-20 rule

How you apply the Pareto principle depends on your circumstances and whether you’re amplifying something positive or correcting something negative. It works equally well on personal and corporate problems.

Keep Juran’s “vital few” and “trivial many” in mind as you apply the principle to your situation.

Applying the 80-20 rule to your productivity

The “trivial many” plays the biggest role in using the Pareto principle to boost productivity. If 80 percent of your output comes from only 20 percent of your time, identifying the trivial tasks that eat the other 80 percent creates the opportunity to shift more time to productive work.

You also need to know which of the trivial many you control. Answering the phone when your boss calls is beyond your control. Responding to a text from your brother about next weekend’s football game isn’t.

Once you accept that some counterproductive causes are out of your hands, you can let those interruptions pass while you take control of the trivial matters you can actually change.

How do you use the Pareto principle in the workplace?

If 20 percent of your team delivers 80 percent of your output, make sure your most important tasks go to that 20 percent—while also addressing whatever’s holding the other 80 percent back.

Some of those issues will be beyond your control. Others won’t be—less productive team members may need more training, better equipment, or work better matched to their skills.

Applying the 80-20 rule to your products and services

When 20 percent of your products or services generate 80 percent of your profits, you need to understand why. That lets you focus on creating more offerings like the profitable 20 percent, or work out whether you can improve the rest to lift their contribution.

If you own a restaurant with 40 items on your menu, it’s likely that 8 of them generate the bulk of your profit. The decision becomes whether to create more menu items like those—or cut the items that aren’t earning their place.

Applying Pareto’s principle to marketing

In marketing, the Pareto principle suggests that 80 percent of your leads come from 20 percent of your strategies. That points to the importance of testing your marketing efforts to find the effective 20 percent. You may not want to throw out the less effective 80 percent, but you’ll know which efforts need modifying to perform better.

Pareto principle in time management

If 80 percent of your productivity comes from 20 percent of your time, then 80 percent of your time goes to less productive tasks. Applying the Pareto principle here means building a prioritized to-do list so you tackle your most productive tasks first—rather than knocking off the easiest ones.

Pareto principle in investing

If an investment advisory firm finds that 80 percent of its profits come from 20 percent of its investors, it can use that information in a few ways:

1. Focus more attention on those investors. Ignoring the other 80 percent of the portfolio wouldn’t be wise, but spending less time on those accounts frees up attention for the higher performers.
2. Determine if existing clients can scale up. Some of the 80 percent might take more aggressive positions or move investments over from other brokerages.
3. Look for more investors like your 20 percent. Once a firm knows the demographics and portfolio size of its best investors, it can target its marketing at finding more clients like them.

How to create a Pareto chart

To create a Pareto chart, gather good data on the issue you’re measuring. Include every contributor to the issue and use the same measure throughout—cost, time, number of errors, and so on.

Be specific when listing contributors. You don’t want “miscellaneous” to become one of your “vital few” because you lumped too much into a vague category. If you’re investigating why your app crashes, you might find 20 contributors in the code. The Pareto principle suggests 4 of them cause 80 percent of your crashes—so it pays to pinpoint all 20 individually.

Advantages of the Pareto principle

The Pareto principle is an effective tool for productivity and time management. Companies can identify their most productive employees and assign them to the most important tasks or clients.

Leaders can keep their teams focused on the highest-impact work while still covering the rest. They can also learn what’s most effective in their own leadership style and adjust to increase productivity.

Companies also discover their most profitable products and services, and can focus more energy there—or build new offerings with the same likelihood of success.

Disadvantages of the Pareto principle

The Pareto principle isn’t a law, and the numbers often vary from 80/20. Sometimes 30 percent of your products generate the highest share of your profit.

The principle also only describes past data—it can’t predict the future. New factors will change which contributors you can control, and some will always stay outside your control.

Focusing too hard on the 20 percent can also create problems if the 80 percent gets ignored. The brokerage above wouldn’t want to drop 80 percent of its clients to focus on the rest—that could amount to fiduciary malpractice, and it’d be damaging if some of the remaining clients suddenly took their business elsewhere.

The lowdown

The Pareto principle explains the imbalance between input and output. It isn’t a fixed or predictable rule, but it applies in many areas—and it can sharpen your time management and focus your attention where it counts.