What is 80 20 rule?

The Pareto Principle or "80-20 rule" is a theory that suggests that you get 80 percent of your profits from 20 percent of your clients or customers
The Pareto Principle or "80-20 rule" is a theory that suggests that you get 80 percent of your profits from 20 percent of your clients or customers

What is 80 20 rule?

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. It was developed by Italian economist Vilfredo Pareto in 1897, and it's since been found to apply to many other fields outside of economics as well. A perfect example is the fact that 80% of your results come from 20% of your efforts.

The Pareto Principle or "80-20 rule" is a theory that suggests that you get 80 percent of your profits from 20 percent of your clients or customers. This has shown to correlate in many areas of finance, business, and even gardening!

1. Who is Vilfredo Pareto

Vilfredo Pareto was an Italian engineer and economist. His most notable contribution to economics was in the form of his Pareto Principle, which is often referred to as the 80-20 rule.

Pareto left his engineering position and went on to become a professor at a college, where he would research how income was distributed in Italy. From this, he found that 20% of the population controlled about 80% of the country's wealth. Making him realize that there was a strong connection between the Pareto principle and wealth distribution.

His legacy as an economist was profound. Partly because of him, the field evolved from a branch of moral philosophy as practiced by Adam Smith; into a data intensive field of scientific research and mathematical equations. His books look more like modern economics than most other texts of that day.  Tables of statistics from across the world and ages; rows of integral signs and equations, intricate charts and graphs.

One of Pareto's equations achieved special prominence, and controversy. He was fascinated by problems of power and wealth. How do people get it? How is it distributed around society? How do those who have it use it? The gulf between rich and poor has always been part of the human condition, but Pareto resolved to measure it. He gathered reams of data on wealth and income through different centuries, through different countries: the tax records of Basel, Switzerland, from 1454 and from Augsburg, Germany, in 1471, 1498 and 1512; contemporary rental income from Paris; personal income from Britain, Prussia, Saxony, Ireland, Italy, Peru. What he found – or thought he found – was striking. When he plotted the data on graph paper, with income on one axis, and number of people with that income on the other, he saw the same picture nearly everywhere in every era. Society was not a "social pyramid" with the proportion of rich to poor sloping gently from one class to the next. Instead it was more of a "social arrow" – very fat on the bottom where the mass of men live, and very thin at the top where sit the wealthy elite. Nor was this effect by chance; the data did not remotely fit a bell curve, as one would expect if wealth were distributed randomly. "It is a social law", he wrote: something "in the nature of man".

2. 80/20 rule

The 80/20 rule is a lot like the idea of saving time by doing things in batches. The rule is that 80% of the work will be done in 20% of the time.  Or 80% of revenue are from 20% of customers.  Many examples of the 80/20 rule  exist in business, and it is a powerful guideline.

Yet, most people don't apply the 80/20 rule to all areas of their life like they should.  They forget to use it in relationship, diet and exercise.

People tend to understand this principle with money only because money is subject to measurement and calculation unlike more abstract ideas.

3. How does the Pareto Principle apply to your life and work

The Pareto principle is a powerful tool that can help you reduce your level of procrastination. There are various ways to apply it in your daily life. For example, if you're trying to make changes in your eating habits, you could choose one area of a diet to focus on.  By focusing on the right foods to cut out you can see 80% of the results of the full diet, with 20% of the effort.

The Pareto principle can help you study smarter by focusing on what really matters for the test.  By focusing on the 20% that is most important you will get 80% of the results.  Now this won't do it you want a perfect score, but if your happy with a low B and much less effort, there is a tip!

When you do work, 80% of the results come from 20% of your work. For example if your a salesperson, then it's very likely 80% of your sales come from just 20% of  customers.   So to really benefit you can focus your efforts of those 20% key customers.

4. Some examples of how the 80 20 rule works in real life

The Pareto principle also could be seen as applying to taxation. In the US, the top 20% of earners paid roughly 80–90% of Federal income taxes.

Microsoft noted that by fixing the top 20% of the most-reported bugs, 80% of the related errors and crashes in a given system would be eliminated.

It was also discovered that in general the 80% of a certain piece of software can be written in 20% of the total allocated time. Conversely, the hardest 20% of the code takes 80% of the time. This factor is usually a part of COCOMO estimating for software coding.

Assuming 20% of the hazards account for 80% of the injuries, and by categorizing hazards, safety professionals can target those 20% of the hazards that cause 80% of the injuries or accidents.

In health care in the United States, in one instance approximately 20% of patients have been found to use 80% of health care resources.

The Dunedin Study has found 80% of crimes are committed by 20% of criminals.

The Pareto principle, also known as the 80/20 rule, is a general observation. Many events that roughly 80% of consequences come from 20% of causes. This means that for any given event or situation there are usually some key factors which contribute to it more than others. The first step in implementing this concept into your business strategy is identifying these “vital few.” and focusing on them before anything else. Once you have identified those vital few elements within your company's operations, focus all attention on maximizing their effectiveness while minimizing other activities that don't generate maximum results. Some examples where the Pareto principle could be applied: Microsoft noted that by fixing the top 20% of the most-reported bugs, 80 % of the related errors and crashes in a given system would be eliminated. It was also discovered that in general the 80% of a certain piece of software can be written in 20% of the total allocated time.

Keeping these examples in mind, go and find your 20% activities that will yield 80% results!

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