how does the 80 20 rule work 
you may think of the 80 20 rule as simple cause and effect 80 of outcomes outputs come from 20 of causes inputs the rule is often used to point out that 80 of a company s revenue is generated by 20 of its customers viewed in this way it might be advantageous for a company to focus on the 20 of clients that are responsible for 80 of revenues and market specifically to them by doing so the company may retain those clients and acquire new clients with similar characteristics however there s a more fundamental meaning to the 80 20 rule at its core the 80 20 rule is about identifying an entity s best assets and using them efficiently to create maximum value for example a student should try to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first this does not imply however that the student should ignore the other parts of the textbook people may not realize that the 80 20 rule is a precept not a hard and fast mathematical law furthermore it is isn t necessary that the percentages equal 100 inputs and outputs simply represent different units the percentages of these units don t have to add up to 100 it s the concept behind the rule that matters there s another way in which the 80 20 rule is misinterpreted namely that if 20 of inputs are most important then the other 80 must not be important this is a logical fallacy the 80 can be important even if the decision is made to prioritize the 20 business managers from all industries use the 80 20 rule to help narrow their focus and identify those issues that cause the most problems in their departments and organizations 80 20 rule backgroundthe 80 20 rule is also known as the pareto principle and is applied in pareto analysis it was first used in macroeconomics to describe the distribution of wealth in italy in the early 20th century it was introduced in 1906 by italian economist vilfredo pareto who is best known for the concepts of pareto efficiency 1pareto noticed that 20 of the pea pods in his garden were responsible for 80 of the peas pareto expanded this principle to macroeconomics by showing that 80 of the wealth in italy was owned by 20 of the population in the 1940s dr joseph juran a prominent figure in the field of operations management applied the 80 20 rule to quality control for business production he demonstrated that 80 of product defects were caused by 20 of the problems in production methods by focusing on and reducing the 20 of production problems a business could increase the overall quality of its products juran referred to this phenomenon as the vital few and the trivial many 2read about investopedia s 10 rules of investing by picking up a copy of our special issue print edition benefits of the 80 20 rulealthough there is little scientific analysis that either proves or disproves the 80 20 rule s validity there is much anecdotal evidence that supports the rule as being essentially valid if not numerically accurate performance results of salespeople in a wide range of businesses have demonstrated success by incorporating the 80 20 rule in addition external consultants who use six sigma and other management strategies have incorporated the 80 20 principle in their practices with good results example of the 80 20 rulea harvard graduate student carla was working on an assignment for her digital communications class the project was to create a blog and monitor its success during the course of a semester carla designed created and launched the site midway through the term the professor conducted an evaluation of the blogs carla s blog though it had achieved some visibility generated the least amount of traffic compared with her classmates blogs carla happened upon an article about the 80 20 rule it said that you can use this concept in any field so carla began to think about how she might apply the 80 20 rule to her blog project she thought i used a great deal of my time technical ability and writing expertise to build this blog yet for all of this expended energy i am getting very little traffic to the site she now understood that even if a piece of content is spectacular it is worth virtually nothing if no one reads it carla deduced that perhaps her marketing of the blog was a greater problem than the blog itself to apply the 80 20 rule carla decided to assign her 80 to all that went into creating the blog including its content her 20 would be represented by a selection of the blog s visitors using web analytics carla focused closely on the blog s traffic she asked herself carla analyzed the answers to these questions and edited her blog accordingly significantly although her analysis did confirm that the blog s biggest problem was its marketing carla did not ignore its content she remembered the common fallacy cited in the article if 20 of inputs are most important then the other 80 must be unimportant and did not want to make that mistake she knew it was necessary to address aspects of the content as well by applying the 80 20 rule to her blog project carla came to understand her audience better and therefore targeted her top 20 of readers more purposefully she reworked the blog s structure and content based on what she learned and traffic to her site rose by more than 220 