Pareto Principle

The Pareto Principle, also known as the ‘80/20 rule’ or the ‘2/8 rule’, is an empirical law that explains the phenomenon that approximately 80% of all results come from 20% of all causes. This law was first proposed in 1896 by Italian economist Vilfredo Pareto, who observed that 20% of the Italian population owned 80% of the total wealth..

 

• Core concept: A small percentage of causes (20%) produce most of the results (80%).

 

• Business: 20% of customers generate 80% of sales, or 20% of products generate 80% of profits.

 

 • Life: 20% of your wardrobe contains 80% of your most frequently worn clothes, or 80% of your results occur in 20% of your time.

 

 • Diverse fields: Observed in a variety of areas including economics, management, time management, human relations, and productivity.

 

 • The exact ratio is not always 80:20, and in reality it can be 70:30, 90:10, etc. The key lies in the principle itself that ‘a few causes create many effects’.

 

• It emphasizes the importance of selection and focus, and suggests the need to focus limited resources (time, effort, capital, etc.) on a few key factors that have the greatest impact.

 

The Pareto principle is very useful in establishing business strategies, determining work priorities, and allocating resources. However, it is not a mathematical formula that strictly applies to all situations, and it is appropriate to understand it as a general framework that explains the phenomenon of unbalanced distribution of results.