80/20 Rule (Pareto Principle)

The 80/20 Rule, also known as the Pareto Principle, is a concept that suggests that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for any given event. The principle is named after Italian economist Vilfredo Pareto, who observed this pattern in his studies of wealth distribution in societies.

The goal of the 80/20 rule in business 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 rule is frequently used in business and economics, you can apply the concept to any field. Wealth distribution, personal finance, spending habits, and even infidelity in personal relationships can all be the subject of the 80-20 rule.

Here are some examples of how the 80/20 rule can be applied:

• Business: The rule is often used to point out that 80% of a compan's revenue is generated by 20% of its customers. 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.
• Study: 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.
• Retail: In any retail organization, the Pareto Principle states that 80% of the sales will be accounted for by 20% of the customers.

It's important to note that the 80/20 rule is a precept, not a hard-and-fast mathematical law. People sometimes mistakenly conclude that if 20% of factors should get priority, then the other 80% can be ignored. This is a logical fallacy. The 80% can be important, even if the decision is made to prioritize the 20%.