Named for Italian polymath Vilfredo Pareto, who noticed that 80% of Italy’s land was owned by about 20% of its population, the Pareto Principle states that a small amount of some phenomenon causes a disproportionately large effect. The Pareto Principle is an example of a power-law type of statistical distribution – as distinguished from a traditional bell curve – and is demonstrated in various phenomena ranging from wealth to city populations to important human habits.
The Pareto or 80/20 principle is a type of power law which states that roughly 20% of a set of causes result in 80% of the effects. The numbers don’t have to be exactly 80/20 though, and they don’t have to add up to 100%: both ’25/95′ and ‘5/70’ are also valid. The key idea is that in most cases cause and effect are not linear: a small subset of causes usual generate most of the effects.
In any given scenario, if you can figure out the primary drivers for an effect you are seeing then you can better optimize the results.
- Some examples: If you know that 20% of your customers are generating 80% of your revenue, you can find and focus on those 20% to provide better (or more) services. Conversely, you may be able to stop spending as much time on the other 80%.
- If you know that 20% of your customers are generating 80% of your revenue, you can find and focus on those 20% to provide better (or more) services. Conversely, you may be able to stop spending as much time on the other 80%.
- Let’s say 5% of customers generate 80% of support calls. With this you could try to figure out why they are struggling and provide additional documentation on your product up front or better set expectations before the sale.
- Or if it turns out they are the type of customer you would rather not have then you can just ‘fire’ them and focus on the other 95% of customers that aren’t nearly as much work. Many business have found by that ‘firing’ the 5% of customers that cause the most problems they lose little to no revenue and end up better off in the long run.
- In the typical job there are only a handful of tasks or projects that provide the most value to your boss or organization. By finding them and then focusing on doing them well, you have a better chance at visibility, raises, and promotions.
- In school the same can be said of coursework. Most courses require an average amount of effort … and then there is the occasional course that requires more work than all the other courses combined for that semester (or even year)