How to Use the 80-20 Rule (What Exactly Is the 80-20 Rule)

 The Pareto Principle, commonly known as the 80-20 rule, is an adage that states that 80% of all outcomes (or outputs) originate from 20% of all causes (or inputs) for any particular occurrence. In business, one purpose of the 80-20 rule is to identify and prioritize inputs that have the potential to be the most productive. For example, after managers determine the aspects that are crucial to their company's performance, they should prioritize those factors.

How to Use the 80-20 Rule (What Exactly Is the 80-20 Rule)

Although the 80-20 axiom is commonly employed in business and economics, the principal may be applied to any industry, including wealth distribution, personal finance, spending habits, and even infidelity in personal relationships.

• According to the 80-20 rule, 80% of outcomes (outputs) result from 20% of causes (inputs).
• The 80-20 rule states that you should focus on the 20% of things that will provide the best results.
• One of the 80-20 rule's principles is to identify an entity's finest assets and use them efficiently to produce the most value.
• This "rule" is more of a precept than a clear and fast mathematical law.

Recognizing the 80-20 Rule

The 80-20 rule may be thought of as basic cause and effect: Eighty percent of outcomes (outputs) result from twenty percent of causes (inputs). The rule is frequently used to demonstrate that 20% of a company's revenue is generated by 20% of its customers. When seen in this light, it may be profitable for a firm to focus on the 20% of clients who account for 80% of revenue and market especially them in order to keep existing clients and recruit new clients with similar qualities.

The Fundamental Principle

The 80-20 rule is based on recognizing an entity's finest assets and utilizing them efficiently to maximize value. 

For example, a student should strive to determine which portions of a textbook will be most useful for an upcoming exam and prioritize those. This is not to say that the learner should disregard the rest of the material.

Frequently Misunderstood

The 80-20 rule is a guideline, not a hard and fast mathematical rule. It is a coincidence that under the rule, 80 percent and 20 percent equal 100 percent. Because inputs and outputs are merely different units, the percentage of inputs and outputs does not have to equal 100 percent.

The 80-20 rule is frequently misapplied. Sometimes the misperception is the consequence of a logical error, such as the belief that if 20% of inputs are the most essential, the remaining 80% must be unimportant. At times, the mistake is caused by the coincidence of 100 percent total.

The 80-20 rule is used by business managers from all sectors to help restrict their attention and discover the issues that generate the greatest problems in their departments and companies.

Background on the 80-20 Rule

The 80-20 rule, also known as the Pareto principle and utilized in Pareto analysis, was initially employed in macroeconomics in the early twentieth century to characterize the distribution of wealth in Italy. It was coined in 1906 by Italian economist Vilfredo Pareto, who is widely known for his principles of Pareto efficiency.

Pareto discovered that 20% of the pea pods in his garden were responsible for 80% of the peas. Pareto applied this idea to macroeconomics by demonstrating that 20% of the people in Italy held 80% of the wealth.

Dr. Joseph Juran, a pioneer in the field of operations management, used the 80-20 rule for quality control in a company manufacturing in the 1940s. He established that 20% of the faults in manufacturing procedures produced 80% of the product failures. 

A company's total quality might be improved by concentrating on and minimizing the 20% of manufacturing difficulties. This phenomenon was characterized by Juran as "the crucial few and the inconsequential multitude."

The 80-20 Rule's Advantages

Although there is no scientific evidence to support or refute the 80-20 rule's validity, there is plenty of anecdotal evidence that supports the rule as basically valid, if not mathematically correct.

Salespeople's performance outcomes across a wide range of organizations have shown success by adopting the 80-20 rule. Furthermore, external consultants that employ Six Sigma and other management methodologies have successfully used the 80-20 approach in their operations.

Real-World Application of the 80-20 Rule

Carla, a Harvard graduate student, was working on a project for her digital communications class. The assignment was to start a blog and track its progress over the course of a semester. 

Carla conceived, designed, and launched the website. The lecturer assessed the blogs halfway through the semester. Carla's site, while visible, had the least amount of traffic as compared to her classmates' blogs.

When Should the 80-20 Rule Be Used?

Carla came upon an article regarding the 80-20 rule. Carla began to consider how she can apply the 80-20 rule to her blog project because it said that it could be applied in any sector. She reasoned, "I invested a lot of time, technical aptitude, and writing expertise to establish this site." Despite all of my efforts, I am receiving very little traffic to the site.

She understood that even if a piece of information is fantastic, it is worthless if no one reads it. Carla reasoned that possibly her blog marketing was a bigger issue than the blog itself.

Application

Carla opted to adopt the 80-20 rule by allocating her "80%" to everything that went into producing the blog, including its content, and her "20%" to the blog's visitors.

Carla examined the blog's traffic using web analytics. She inquired:

1. Which sources account for the top 20% of visitors to my blog?
2. Who are the top 20% of my target audience that I want to reach?
3. What are the general features of this audience?
4. Can I afford to spend more money and time delighting my top 20% of readers?
5. Which blog entries account for the top 20% of my best-performing themes in terms of content?
6. Can I improve on those themes and gain more traction for my material than I do now?

Carla examined these concerns and made the following changes to her blog:

• She tweaked the blog's appearance and persona to match those of her top 20% target audience, a popular micromarketing tactic.
• She rewrote some information to better fit the demands of her target reader.

Although her investigation confirmed that the blog's main issue was its marketing, Carla did not dismiss its substance. She remembered the article's typical fallacy if 20% of inputs are most significant, then the remaining 80% must be unimportant, and didn't want to repeat that mistake.

After all

Carla better knew her audience and targeted her top 20% of readers by implementing the 80-20 rule in her blog project. Based on what she learned, she restructured the blog's structure and content, and traffic to her site increased by more than 220 percent.