Pareto Principle

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

The Pareto principle, popularly known as the 80/20 rule, states that for many cases, roughly 80% of the results come from 20% of the factors. Generally, the Pareto Principle is the strategy (not law) that states that most things in life may not be distributed evenly.

It may mean any of the following things:

  • 20% of the input creates 80% of the result
  • 20% of the customers generate 80% of the revenue
  • 20% of the total workers produce 80% of the result
  • 20% of the characteristics cause 80% of the usage

Usage of the Pareto Principle

The Pareto principle is generally used by businesses to identify the most potential products/services, which can generate a significant part of revenue/income/growth. It is also useful in determining which areas to concentrate the energies and resources on so that maximum productivity is achieved.

By using the 80/20 rule, individual employees will prioritize their tasks to concentrate on the crucial 20% that will produce 80% of the results. Likewise, it is vital to use the Pareto Principle to classify the causes of the unproductivity at work. The managers can use the 80/20 rule to determine the 20% of causes that lead to 80% of unproductivity, and then take appropriate action to resolve the unproductivity-causing issues.

Based on the business goals, the Pareto Principle can be used to decide in which way it has to focus the efforts and money on the 20% of employees who produce most of the revenue. Also, the principle can be used to improve the skills of 80% of other employees who are struggling to sell.

The Pareto Principle also suggests that the bulk of sales comes from a small proportion of your total amount of customers. Therefore, only a few of the goods or services are generating the most sales.

Conclusion

The Pareto Principle is not a strategy to eradicate the non-critical aspect of any given situation. It is a basic principle that helps to transfer attention to the areas that will have a great impact on the end goal and will produce the greatest results.