Learn about the most important practical principles of the Pareto Principle | Rule 20 - 80

The 80-20 rule, also known as the Pareto Principle, is an aphorism which asserts that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for any given event. In business, a goal of the 80-20 rule is to identify inputs that are potentially the most productive and make them the priority. For instance, once managers identify factors that are critical to their company’s success, they should give those factors the most focus.

Although the 80-20 axiom is frequently used in business and economics, you can apply the concept to any field—such as wealth distribution, personal finance and spending habits.

Understanding the 80-20 Rule:

You may think of the 80-20 rule as simple cause and effect: 80% of outcomes (outputs) come from 20% of causes (inputs). The rule is often used to point out that 80% of a company’s revenue is generated by 20% of its customers. Viewed in this way, then it might be advantageous for a company to focus on the 20% of clients that are responsible for 80% of revenues and market specifically to them—to help retain those clients, and acquire new clients with similar characteristics.

Core Principle:

At its core, the 80-20 rule is about identifying an entity’s best assets and using them efficiently to create maximum value. For example, a student should try to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first. This does not imply, however, that the student should ignore the other parts of the textbook.

The 80-20 rule is misinterpreted often. Sometimes the misunderstanding is the result of a logical fallacy—namely, that if 20% of inputs are most important, then the other 80% must not be important. At other times, the confusion stems from the coincidental 100% sum.

The 80-20 rule is a precept, not a hard-and-fast mathematical law. In the rule, it is a coincidence that 80% and 20% equal 100%. Inputs and outputs simply represent different units, so the percentage of inputs and outputs does not need to equal 100%.

Business managers from all industries use the 80-20 rule to help narrow their focus and identify those problems that cause the most crises in their departments and institutions.

General view about 80-20 Rule:

The 80-20 rule—also known as the Pareto principle and applied in Pareto analysis—was first used in macroeconomics to describe the distribution of wealth in Italy in the early 20th century. It was introduced in 1906 by Italian economist Vilfredo Pareto, best known for the concepts of Pareto efficiency.

Pareto noticed that 20% of the pea pods in his garden were responsible for 80% of the peas. Pareto expanded this principle to macroeconomics by showing that 80% of the wealth in Italy was owned by 20% of the population.

In the 40s of the last century, Dr. Joseph Juran, prominent in the field of operations management, applied the 80-20 rule to quality control for business production. He demonstrated that 80% of product defects were caused by 20% of the problems in production methods. By focusing on and reducing the 20% of production problems, a business could increase its overall quality. Juran coined this phenomenon “the vital few and the trivial many.”

Benefits of the 80-20 Rule:

Although there is little scientific analysis that either proves or disproves the 80-20 rule’s validity, there is much anecdotal evidence that supports the rule as being essentially valid, if not numerically accurate.

Performance results of salespeople in a wide range of businesses have demonstrated success by incorporating the 80-20 rule. In addition, external consultants who use Six Sigma and other management strategies have incorporated the 80-20 principle in their practices with good results.

Real-Life Examples of the 80-20 Rule (Pareto Principle):

Yousef was a graduate student at Mansoura University, working on a mission in the field of digital communications. The project was to create a blog and monitor its success during a semester. Yousef designed, created and launched the website. Halfway through the semester, the professor conducted a blog review, and although Yousef’s blog had some exposure,   it had the least amount of traffic compared to his colleagues’ blogs.

When has the 80-20 rule been applied?

Yousef read about the 80-20 rule. Since it is said that you can use this concept in any field, Yousef started thinking about how to apply the 80-20 rule to his blog project. He thinks: “I spent a lot of my; time, technical capabilities and writing experiences to create this blog. However, despite all this energy, I get very few visits to the site. ”

He realized that even if a piece of the content was amazing, it would be worth almost nothing if no one reads it. Yousef concluded that his marketing of the blog may have been a bigger problem than the blog itself.

To implement the 80-20 rule, Joseph decided to allocate “80%” to the work of creating the blog including its content as “20%”. He divided the visitors of the blog. Using web analytics, Yousef focused closely on blog traffic, asking about.

ü What sources make up the top 20% of traffic to my blog?

ü Who are the top 20% of my audience I want to reach?

ü What are the characteristics of this audience as a group?

ü Can I afford more money and effort to satisfy the top 20% of readers?

ü In terms of content, which blog posts make up the top 20% of my top performing topics?

ü Can I improve on these topics and get more traction from my content than I am getting now?

Youssef has analyzed these questions and modified his blog accordingly:

He modified the blog design to align with those of the top 20% of the target audience. It is a common strategy in marketing. Then he rewrote some of the content to fully meet the needs of the target reader.

Although his analysis confirmed that the blog’s biggest problem was its marketing, Youssef did not ignore its content. He remember the common fallacy cited in the article - if 20% of the input is the most important, then the other 80% must be unimportant - and he didn’t want to make that mistake.

By applying the 80-20 rule to his blog project, Yousef better understood his audience and purposefully targeted the top 20% of readers. He reworked the blog’s structure and content based on what he has learned. As a result, visits to his site increased by more than 220%.