80-20 Rule

Reviewed by Vineeth | Updated on Aug 27, 2020

Introduction:

The 80-20 rule is a financial observation which has shown that 80% of all the outcomes are due to 20% of causes for any event.

What is the 80-20 rule?

In businesses, an objective of the 80-20 rule is to find inputs that have the potential to be the most effective and be taken on priority. For example, if an employee is able to pick up parameters that are significant for the company to be successful, that employee should emphasise more on those parameters.

Although 80-20 rule is mostly implemented in economics and business, individuals still can make use of this rule in all fields. It can be used in wealth distribution, spending patterns, personal finance, and personal relationships.

The core of the 80-20 rule lies in identifying the best-performing assets and how does that help in optimising the wealth and its value.

For instance, a pupil must make efforts in finding out that part of the textbook which contains that part of the syllabus which is of utmost importance and most questions in the exam would be based on this part. This does not necessarily mean to ignore the rest, but more emphasis should be on this part.

How to implement 80-20 rule in different scenarios?

One may consider the 80-20 rule as a simple effect and cause. This rule basically says that 80% of the outcomes are due to 20% of causes. The 80-20 rule points out that significant revenues (about 80%) of an enterprise is generated by a mere 20% of its clients and customers. By knowing this, an enterprise will then be in an advantageous situation if it focused more on this 20% of customers, contributing to 80% of the revenues. Also, it is always a good idea to serve the old clients better because this will help them acquire new clients through word of mouth.

Conclusion:

Businesses and enterprises should necessarily follow the 80-20 rule as they would benefit by focusing more on the clients that bring significant revenues to the company. This helps in reducing the cost of marketing as they don’t really need new customers.