What is Pareto Principle? The 80-20 Rule Explained

Sometimes, you feel like you have put too much effort into something, but the results could be more consistent than the efforts. There can be different reasons behind it, such as applying your resources and energy to the wrong things. In simple words, misdirected efforts produce minimum to no results. One way to minimize this from happening is to use Pareto Principle.

The Pareto principle aims to address this miscalculation and help individuals, teams, and organizations prioritize things that yield maximum results. It strives to increase efficiency and productivity to achieve desired goals without wasting energy and resources.

But the question is, what is Pareto principle, how does it work, and where is it applicable? 

What is Pareto Principle?

The Pareto principle is a general theory of a relationship between cause and effect. It states that 20% of causes create 80% of effects.

Simply put, it is a phenomenon that shows that in various areas of life or business, focusing on 20% of things can bring 80% of positive results. This principle helps people and organizations identify and prioritize only the most fruitful efforts, improving overall efficiency.

Even though it is not a scientific formula, one can observe the Pareto principle in many areas. For example, the founder of this principle, Vilfredo Pareto, observed that 20% of the Italian people owned 80% of the land. Similarly, this phenomenon presents itself in organizations where 20% of the workforce creates 80% of the results.

The Pareto principle is known by other names, such as:

  • The 80/20 Rule
  • Principle of Factor Sparsity
  • Law of the Vital Few

Apart from organizations, this principle can be observed in relationships, sales, marketing, sports, etc.

How Does the Pareto Principle Work?

The Pareto principle helps you recognize the most valuable tasks you need to prioritize that will yield the most profitable results. However, the most valuable task is usually the most complex and challenging to do. Even when people identify them, they procrastinate on them by focusing on less important tasks that yield insignificant results.

The 80/20 rule fixes this problem by incentivizing the effort. When you know that you can get positive results by focusing all your energies and potential on the most critical tasks, you are more likely to prioritize and work on them.

This is how the Pareto principle prevents wasting time, energy, and resources to make a process as efficient as possible.

However, people misinterpret the 80/20 rule sometimes. Many become too focused on the 20 percent of tasks and completely neglect the remaining 80 percent. Even though the rule helps you identify the most important areas, it doesn’t say the rest is unimportant.

Applications of the Pareto Principle

It is quite surprising that even though the Pareto principle is not a mathematical formula or a scientific truth, it is still easily applicable to many areas of personal and professional life.

1.     Time Management

Whether it is your career goals or your day-to-day activities, identifying the 20% core valuable tasks, focusing on them, and delegating the rest can help you manage your time more efficiently.

2.     Business Efficiency

The Pareto principle is applicable in organizations that focus on the development, training, and incentivization of the top 20% of employees, which can yield 80% of benefits for the organization.

3.     Relationships

Specific core issues in every relationship constitute 20% of problems but are usually hard to confront. Prioritizing these issues and solving them first can improve the quality of a relationship by 80%.

4.     Personal Health

An obese person is prone to a lot of diseases and health issues like hypertension, diabetes, digestion/gastric, and joint issues because of being overweight. Therefore, applying the Pareto principle and focusing on losing weight can bring 80% benefits for overall health.

5.     Marketing and Sales

Marketers, advertisers, and salespeople regularly apply the 80/20 rule in various areas of their work.

For example, many advertisers understand that advertising in the key 20% locations with a larger target audience will yield 80% ROI in their campaigns.

Similarly, salespeople know that only focusing on the top 20% of buyers can help bring 80% of the target revenues in a quarter.

Advantages of Pareto Principle

Following are the key advantages of the Pareto Principle.

1.     Identification of Priorities

Applying the Pareto principle hinges on correctly identifying the 20% most valuable things to do. This engages individuals and organizations to brainstorm and analyze the most important and valuable elements of their work.

2.     Resource Optimization

The most notable advantage of applying the 80/20 rule is the better and more efficient use of resources such as time, energy, workforce, money, etc. When you realize which task is most valuable, you save considerable resources from going into less important or less beneficial tasks.

3.     Improved Focus

When you’re focused on many things at once, you’re most likely doing them all inadequately. Using the Pareto principle, you can narrow your focus to only the most fruitful/important objectives. This improves your concentration and the results you get from your efforts.

4.     Better Decision Making

Better decision-making is a natural consequence of prioritizing the most critical tasks. When you become adept at applying the 80/20 principle, you start making better decisions in areas like:

  • Resource Allocation
  • Identification of Strengths and Weaknesses
  • Automation
  • Business Process Outsourcing

Disadvantages of Pareto Principle

Here are the key disadvantages of Pareto Principle.

1.     Lack of Creative Freedom

Sometimes Pareto principle can make processes and systems too mechanical. This can make you feel restricted when coming up with creative or innovative solutions.

2.     Reduced Adaptability

When organizations become increasingly focused on the 20%, they might find it hard to react flexibly in changing situations. They are so restricted by their priority tasks that they either ignore new concerns or address them too late.

3.     Idealistic Goals

There is a chance to set sights on idealistic or unrealistic goals when prioritizing tasks following the Pareto principle.

For example, a CEO might start believing that by applying the 80/20 rule, they can capture a wider market share by the end of the quarter. However, when it doesn’t necessarily happen that way, the company might spend more resources on the priority tasks without reconsidering its approach and goals.

4.     Employee Burnout and Demoralization

Expecting employees to focus too hard and too strictly on priority tasks can demoralize them and make them feel burnt out when they fail to achieve the objectives.

Challenges Faced in Applying Pareto Principle

Pareto Principle theory has some limitations. Here are the challenges in the application of the Pareto Principle.

1.     Misconception about Effort

A common misconception that can often become a challenge is that people assume they need to put in minimal effort to get maximum results. However, the rule is about identifying the most valuable tasks and then putting 100% effort into them. In most cases, priority tasks are more demanding than non-priority tasks.

2.     Difficult to Measure

The results from the Pareto principle are difficult to quantify and analyze. Sure, the rule indicates that you’ll get 80% results, but since it is a general theory rather than a scientifically measurable quantity, it can be complicated to measure its success.

3.     Wrong Identification of Problems

Sometimes, when individuals look too hard to tackle a 20% problem, they choose the wrong issues to focus on. They pick the first problem that jumps at them and treat it as the most critical 20% issue.

4.     Inappropriate for Time-sensitive Situations

To apply the Pareto principle accurately and avoid the problems mentioned above, it is essential to analyze the most valuable tasks carefully. This can be time-consuming, making the 80/20 rule hard to implement in time-sensitive situations.

Pareto Principle Examples

Following are some real-world examples of Pareto Principle

1.     The Sale at Video Stores

In the New York Times article published in 1988, many video store owners reported that almost 80 percent of their revenue came from selling 20 percent of tapes. This is a real-life example of the 80/20 rule in business.

Many people and businesses report the same figures even today, where 20% of their products bring in 80% of revenue.

2.     Computing and Software Development

In the software development industry, it is generally understood that 20% of the code has 80% of the errors.

However, the statement was proven to be true in 2002 when Microsoft CEO Steve Ballmer noticed that 80% of the errors were caused by 20% of the bugs in the code.

3.     Global Income

It is a general notion that the top 1% of the population controls global wealth. However, that is an overstatement.

A more accurate figure, which also establishes the authenticity of the Pareto principle, was released by the United Nations Development Program in 1992. According to the report, 20% of the world’s population was receiving 82.7% of the global income.

4.     Spread of Infectious Diseases

During the super spreading events of infectious diseases, it has been observed that 20% of the most infectious individuals are responsible for 80% of the spread of the disease.

Final Words

Using proven methods to improve efficiency is the goal of many organizations and individuals. The Pareto principle pushes us one step closer to making that possible.

It has been so successful mainly because it eliminates distraction, narrows focus, and controls resources so that only the most essential and impactful objectives are achieved first. Furthermore, its diversity of application makes it possible for everyone to use it regardless of age, gender, nature of the industry, or position in an organization.

ShaharYar Ahmad

ShaharYar Ahmad is a business graduate and a professional SEO content writer who has been working since December 2019. Currently, he is a Top-Rated Freelance Content Writer at Upwork (The biggest freelancing platform in the world). He mainly writes about marketing, finance, business, law, advertising, Saas, M&As, corporate governance, real estate, and Fintech. He has worked with International Saas and Fintech/Payment processing companies (as a freelance content contributor and ghostwrites blog posts). ShaharYar has been creating content for Marketing Tutor since January 1, 2021 and Orchid Homes Real Estate since January 2023.

Recent Posts