What is 80-20 Rule or Pareto Principle: 15 FAQs

1. What is 80-20 rule?

The Pareto Principle also known as 80-20 rule, states that for many outcomes roughly 80% of consequences come from 20% of caused. This is not a mathematical formula but more a generalized principle that can be observed in economics, business, time management, sports, investments etc. This is also known in a couple of different names:

1. Pareto Principle
2. Law of the vital few
3. The 80-20 Rule
4. Principle of factor sparsity

2. Who coined the term “80-20 rule”?

Italian economist Vilfredo Pareto developed the 80-20 rule. He observed in the year 1897 that 80 percent of the land in England ( subsequently studied more countries) was owned by 20 percent of the population.

3. How does the 80-20 rule apply in business?

The Pareto Principle or 80-20 rule applies in business in a way that 80 percent of a given business’s profit typically comes from a mere 20 percent of its clientele. Business owners who subscribe to the 80-20 rule know the best way to maximize results is to focus the most marketing effort on that top 20 percent.

4. Can you give examples of the 80-20 rule in practical?

80-20 rule (Pareto principle) is applicable in different fields as per suitability. The concept behind this principle will be cleared from these examples:

1. 80% of sleep quality occurs in 20% of sleep.
2. 80% of results are caused by 20% of thinking and planning.
3. 80% of family problems are caused by 20% of issues.
4. 80% of retail sales are produced by 20% of a store’s brands.
5. 80% of alarms will be set off by 20% of potential causes.
6. 80% of the energy in a combustion engine produces 20% output.
7. 80% of people marry within 20% of the local population.
8. 80% of companies’ absenteeism is caused by 20% of staff.

5. What are the implications of the 80-20 rule in time management?

The Pareto principle or the 80-20 rule in time management states that 80 % of results will come from 20 % of your effort you put. It can help us to focus on activities that will have the biggest impact in our business and personal lives.

6. How does the 80-20 rule relate to productivity?

As per this rule, completing 20% of those tasks will result in 80% of the impact you can create for that day. One can use the 80-20 rule to prioritize the tasks that you need to get done during the day. The idea is that out of your entire task list, completing 20% of those tasks will result in 80% of the impact you can create for that day.

7. Is the 80-20 rule applicable in personal finance?

• Yes, the 80-20 rule it can be applicable for your personal finance also. It is used to analyze your expenses and identify the significant contributors to your spending. By examining your budget, you may find that approximately 20% of your expenses account for 80% of your total spending. This can help you focus on controlling or optimizing those specific areas to make the most significant impact on your overall financial situation.
• The 80-20 rule can also be applied to your investment portfolio. It suggests that a small portion, roughly 20%, of your investments will likely generate the majority of your returns. Therefore, it’s essential to focus on asset allocation and identify the most impactful investments to optimize your portfolio’s performance.
• Moreover, if you have multiple debts, such as credit cards, loans, or a mortgage, the 80-20 rule can help you prioritize which debts to be tackled first. Analyze the interest rates and balances of your debts and focus on paying off the 20% of debts that have the highest interest rates or the largest balances. By addressing these key debts, you can make significant progress in reducing your overall debt burden on you.

8. What are some common misconceptions about the 80-20 rule?

• One of the most common misconceptions about the 80-20 rule or Pareto Principle is that it is a fixed ratio of 80/20. While the 80/20 ratio is the most commonly observed pattern, it is not set in stone. In some cases, the ratio may be closer to 85/15 or even 82/18. The key takeaway here is that the idea behind the Pareto Principle is not about the specific ratio rather the concept of a small number of factors having a significant impact.
• The other one is that the 80-20 rule applies to everything. While the Pareto Principle can be applied to many different fields, it is not a universal law that applies to everything. There are cases where the ratio is not applicable or where other patterns emerge. For example, in some cases, the top 5% of customers may account for 95% of revenue, while in others, the top 1% may account for 50% of revenue.
• The third misconception about 80-20 rule is that it is a rule, not a guideline: While the Pareto Principle can be a useful tool for identifying the key factors that have the most significant impact, it is not a hard and fast rule. There are cases where the ratio may not hold, or where other factors may be more important. It is essential to use the principle as a guideline rather than a strict rule.

9. How can businesses leverage the 80-20 rule for decision-making?

• In the field of sales and marketing, the 80-20 Rule is invaluable for developing strategies. By identifying which products or customers are generating 80% of the sales, a company can direct its marketing efforts more effectively, emphasizing top-performing products or tailoring customer service to maintain lucrative relationships.
• Similarly, in profitability analysis, 80-20 rule (Pareto Principle) can also be applicable. It allows companies to identify the most profitable aspects of their operation, so they can allocate resources to maximize margins and streamline or eliminate less profitable activities.

10. Are there variations of the 80-20 rule?

It is true that 80-20 rule is applicable various fields, however, the ratio is not fixed, there may be 75-15 or 90-10. In most of the cases the ratio i.e. 80:20 is a standard or basic ration can be taken first. Here are various field where this rule can be applied:

1. 80% of budget overruns are caused by 20% of expenses.
2. 80% of your success comes from 20% of your ideas.
3. 80% of the public uses 20% of their computers’ features.
4. 80% of crimes are committed by 20% of criminals.
5. 80% of sales are from 20% of clients.
6. 80% of project value is achieved with the first 20% of effort.
7. 80% of your knowledge is used 20% of the time.
8. 80% of sales are produced by 20% of a company’s products or services.
9. 80% of stress is caused by 20% of stressors.
10. 80% of rapid promotions are available in 20% of companies.
11. 80% of customers perceived value relates to 20% of an organization’s work.
12. 80% of the wealth is owned by 20% of the population.

11. What strategies can individuals use to implement the 80-20 rule in their lives?

Use 80/20 rule to increase your productivity.

Applying the 80/20 Principle to increase productivity involves identifying and focusing on the most important tasks that yield the majority of the desired results. Here are some steps you can take to implement the 80/20 Principle in your daily life:

1. Prioritize the vital few: Identify the top 20% of tasks that yield 80% of the results. Focus on these tasks and allocate more time and resources to them. This approach allows you to concentrate on the most critical and impactful activities that drive your success.
2. Delegate or eliminate: For tasks that fall into the less productive 80% category, consider delegating them to others or finding ways to automate or simplify them. In some cases, it may be necessary to eliminate these tasks entirely if they don’t contribute to your goals.

By implementing the 80-20 principle in your life, you can optimize your productivity, make better use of your time, and ultimately achieve more with less effort.

Use 80/20 rule to improve your career prospects.

1. Analyze your strengths and contributions: Reflect on your skills, strengths, and the areas where you have made significant contributions in your career. Determine the 20% of your efforts that have generated 80% of your success or recognition. This could include particular skills, projects, or relationships that have propelled your career forward.
2. Build and nurture relationships with the 20% of people who have the most significant influence on your career. This could include mentors, colleagues, managers, or industry leaders. By fostering meaningful connections with these individuals, you can access new opportunities, gain valuable insights, and enhance your professional reputation.

By applying the 80-20 Principle to your career, you can focus on your strengths, invest your time and energy into high-impact activities, and accelerate your career growth.

Use 80-20 rule to improve your business.

1. Customers and revenue: Analyze your customer base and revenue streams to identify the top 20% of customers or products that generate 80% of your profits. Focus your efforts on retaining and growing these high-value customers, and consider ways to improve or expand the offerings that drive the most revenue.
2. Assess your marketing and sales efforts to pinpoint the 20% of strategies or channels that drive 80% of your leads or conversions. Allocate more resources to these high-performing channels, and refine or eliminate underperforming strategies.

By applying the 80-20 Principle to various aspects of your business, you can optimize resource allocation, improve efficiency, and ultimately drive greater success and profitability.

Use 80/20 rule to improve your health and fitness.

1. Identify high-impact exercises: Determine the 20% of exercises or workouts that yield 80% of your desired results, whether that’s building strength, increasing endurance, or losing weight. Focus on incorporating these high-impact exercises into your routine to maximize efficiency and achieve your goals more effectively.
2. Nutrition and diet: Assess your eating habits and identify the 20% of foods that contribute to 80% of your total calorie intake or provide the majority of essential nutrients. Prioritize consuming nutritious, high-quality foods that support your fitness goals while minimizing empty calories and unhealthy options.

Use 80/20 rule to improve your investment portfolio.

1. Identify high-performing assets: Analyze your investment portfolio to determine the top 20% of assets that generate 80% of your returns. Focus on these high-performing assets and consider allocating additional resources to them, while reevaluating underperforming assets.
2. Investment strategy: Focus on the 20% of strategies that yield 80% of your desired outcomes. This could involve prioritizing long-term, value-based investments or concentrating on specific sectors or themes. Devote more time and resources to researching and executing these high-impact strategies.

12. How does the 80-20 rule apply to relationships?

While the rule is broadly interpreted as getting 80% of your results from 20% of your effort, in relationships. The 80-20 rule can be applied in several ways, for instance, you can expect to get 80% of your needs met by your partner in your relationship, but the other 20% is up to you. In another context, you can expect satisfaction from your relationship 80% of the time, while the other 20%, not so much. Also, 20% of your issues will cause 80% of your problems. 

13. What industries commonly use the 80-20 rule?

1. Financial Industry: Finance and economic businesses, such as accountancy firms, may use the 80-20 rule to find that 20% of costs led to 80% of their expenses for their clients. Using this Pareto Principle can help break down chunks of data, so it is easier to understand.
2. Retail Industry: Retail businesses such as supermarkets, shops, bakeries, takeaways, and restaurants using the 80/20 rule may find they earn roughly 80% of their profits from 20% of their products. Retail or salespeople can learn which products are selling the best and which ones need to be improved.
3. Marketing Industry: Marketing is a huge industry where the 80-20 rule can help establish which campaigns, platforms or strategies are working best. In terms of marketing for example, 80% of the results will come from 20% of the marketing campaigns you run, therefore it’s essential to measure the results so you can identify the 20% that works. Not only does it mean you can put more money into the marketing that works, but you can also eliminate spending on inefficient campaigns. You can see now why the 80-20 rule can be used to help break down the campaign and delve deep into the results to identify; marketing platforms, types of advertising, tone of voice and many more metrics, to make sure the campaign runs super efficiently for your chosen target market. 
4. Hospitality Industry: Hospitality is a popular industry comprised of hotels, cafes, motels and holiday inns. These businesses can use, for example, the 80-20 rule to evaluate customer service, 80% of customer service ratings come from 20% of the customer service team. This shows the customer service team need support with customer enquiries so introducing new training can improve their customer service rating and trust.

14. Can the 80-20 rule be applied in project management?

Every project is unique and requires careful planning to ensure teams can deliver fast and efficient results. Project managers have a range of tools and methods at their disposal to keep their teams on track, including project management software, Gantt charts, work breakdown structures, timesheets, and more. When it comes to the 80-20 rule, using it as a general framework can help you to prioritize your project’s tasks to get better results.

The Pareto principle is particularly useful for projects where you have many tasks to complete and need to prioritize them. You can employ the rule by completing the following steps:

1. Evaluate the goals of your project
2. Divide the tasks into two categories: high value, low effort and low value, high effort
3. Spend most of your resources on the high-value, low-effort tasks and the remaining resources on the low-value, high-effort tasks
4. Adjust or refocus as needed throughout the process based on changes in objectives or resource availability

It is vital to remember that just because 20% of tasks are the highest priority, it doesn’t mean that the other 80% are not important to a project’s success. Overlooking the low-value tasks can have negative implications for the high-value tasks and derail your project altogether.

15. What are some resources for further learning about the 80-20 rule?

The Pareto Principle, named for economist Vilfredo Pareto, is an observational theory that 80 percent of his Italian homeland’s property was owned by just 20 percent of the population. After testing the idea in other countries, Pareto came to the conclusion.

Pareto’s discovery in the 1800s was then applied to modern business by management consultant Joseph M. Juran, who utilized the Pareto Principle in quality control. He posited that 80 percent of a product’s problems are caused by 20 percent of the same recurring issues. For instance, 80 percent of vehicle breakdowns are caused by 20 percent of car or truck parts, or 80 percent of a program’s crashes are caused by 20 percent of the bugs.

These comparisons also extend to other areas of management. The Pareto principle has been applied to marketing, products, public relations, and more.

It could be that 80 percent of your webpage’s traffic is due to 20 percent of your social media posts or that 80 percent of your company’s profits is due to 20 percent of your clients.

You can further learn about the 80-20 rule by utilising in various field in your life.

Also Read: 

1. National Domestic Product (NDP)


2. Gross National Product (GNP)


3. Understanding of NNP (Net Nation Product)


4. 15 FAQ on Personal Finance


5. Gross Domestic Product (GDP)