Pareto Principle or 80/20 Rule

Do you feel that you have a lot of activities but at the same time no time for anything? At the end of the day you come home tired saying you had a busy day, but can’t remember what you had to do? Do you find you have a lot of tasks to do but put them off because you don’t know where to start?

The Pareto Principle will help you understand why you answered yes to these questions and how you can work with yourself in the future to improve both your personal and professional life.

1. What does the Pareto principle mean?

The Pareto Principle is a statistical phenomenon that shows us that, in general, 80% of the consequences of a phenomenon, situation or system are determined by 20% of the causes. The 80/20 rule is also known as the law of the few but critical and was observed and validated by the Italian economist Vilfredo Pareto.

In 1895, Pareto observed that people in society seemed to divide naturally into two categories – 20% of the population was made up of the rich and influential and the remaining 80% were ordinary people.

He later discovered that all of Italy’s economic activity was, in fact, subject to this principle: 80% of Italy’s wealth was controlled by 20% of the population.

2. What are the advantages of the Pareto principle?

What are the advantages of the Pareto principle

Pareto’s principle can be extremely effective in any field. Basically, it is a statistical technique for classifying small tasks that have a significant effect.

Although the Pareto Principle is talked about as a way to achieve success without effort, it is necessary to analyze the situation you are in and try to apply this rule to discover which is the right direction. So here are some of the effects of the principle:

  • 20% of your customers will generate about 80% of your business profit;
  • 20% of your business will give you 80% of the profits;
  • 80% of personal satisfaction is generated by 20% of the people in your immediate circle.

Also among the advantages of the 80/20 rule are the following:

  • Efficient problem solving by identifying root causes and ranking them in order of importance;
  • finding the direction in which efforts should be directed;
  • setting priorities according to needs and urgencies;
  • improving the use of scarce resources.

3. Pareto Principle in Sales

The Pareto Principle in Sales

The Pareto Principle is valuable in sales because it means that 80% of a company’s sales are generated from 20% of its customers. Thus, this principle helps you to identify more easily which is the ideal customer profile for your products and services.

Furthermore, the 80/20 rule shows that 20% of your time brings 80% of your results, and 20% of a company’s employees bring 80% of its revenue. So you’ll know which employees are worth promoting and motivated to stay with you.

On top of that, you have the opportunity to become more productive and drive sales and profit growth. Thus, the pareto principle is an excellent tool for growing a business.

4. The 80/20 principle in everyday life

The 80-20 principle in everyday life

There are many ways in which the 80/20 principle can be used to improve productivity in personal life as well. Take a close look at your daily habits and discover what you could do to achieve better results and greater personal satisfaction.

First and foremost, whether it’s managing your budget, your time, or any other activity, it’s wise to analyze what you have to do. Once you build a to-do list, you’ll realize that most tasks aren’t really important.

The pareto principle in everyday life suggests focusing more on prioritizing the truly essential items that will generate the most significant results.

5. How to use the Pareto method?

How to use Pareto's method

The 80/20 principle method is the first steps to have the results generated by the Pareto chart. First of all, it is necessary to establish what is the problem you want to analyse and which variables have an effect on it.

Once you have established these, it is necessary to prepare the data by completing a table that will generate a graphical representation of the data. To know what to do, follow the next steps:

  1. Record the raw data;
  2. Arranges information by category;
  3. Divides the vertical axis into equal fragments;
  4. Divides the horizontal axis into equal fragments;
  5. Draw the bar next to each category;
  6. Identifies cumulative frequencies in categories;
  7. Constructs the line of cumulative frequencies.

6. Pareto chart

Pareto diagram

If you have managed to follow the above steps, you will get the Pareto chart that will help you to make a decision in the problem. Moreover, it is easy to use and you don’t need advanced knowledge of statistics to be able to interpret it.

With the Pareto chart you’ll be able to analyze a lot of variables, no matter what problem you’re looking for causes and solutions to. But it is important to know how to use the Pareto principle correctly in such situations.

Thus, it is important to identify the things that really matter. These things differ from period to period, depending on the context. Once you’ve identified the area in which you want to succeed, look for the things that generate results in those areas.

Last but not least, one of the most important recommendations is to use your time and resources correctly. It is advisable to devote more time and effort to the things that really matter. How can you do this?

Try to plan ahead what you need to do and prioritise the important things. Then eliminate things that don’t matter and don’t impact your decisions.

7. Situations that violate the Pareto principle

Situations that violate the Pareto principle

The Pareto principle is usually extremely useful in forming a general view of a particular situation. However, one should not ignore the majority part of 80%. In addition, there are situations where the principle is not always valid, and the percentage may differ.

For example, if you are at the stage where you are trying to develop a new skill, then the 80/20 principle may not be applicable from the first moments, or perhaps never.

Some people say that if this principle is applied repeatedly, we will eventually reach zero. This is because they take the principle as a universally valid law, which is wrong.

Others argue that without the less important things like dressing, eating, or transportation we will not get to accomplish the most important things. But the Pareto principle doesn’t suggest that you give up 80% of your activities, but that you focus more on the 20% that are more important.

8. Book recommendation on the Pareto principle

Book recommendation on the Pareto principle

If you want to learn how the 80/20 rule can be applied to achieve much more with much less time, effort and resources, we recommend you delve deeper into this topic with the following books on the Pareto Principle:

  • The 80-20 Principle. How to achieve more with less – Richard Koch;
  • The Pareto Manifesto – Blanchard John III;
  • Maximizing The Pareto Principle – Sensei Paul David.

So, since in most of your activities you certainly want the best possible results, it is very good to have a mindset based on the 80/20 rule. If you focus more on the things that matter, you have a better chance of improving both your personal and professional life.

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