What is the Pareto principle? How can we use it in our daily lives or at work?
The rule was laid down by Italian economist Vilfredo Pareto in 1906, when he observed that only 20% of the Italian population owned 80% of the country's wealth. This pattern was later extended to other areas, where similar proportions were found.
What is the 80/20 rule?
The Pareto principle is that 20% of our actions will produce 80% of consequences.
This means that the percentage of our actions, of our work, that actually produces useful and value-creating results is in the minority. In other words, three quarters of our actions are not effective enough to drive meaningful results.
Pareto principle - examples
Let's look at some practical examples of the Pareto principle. Let's take our everyday life first:
- When chatting, we exchange 80% of our messages with only 20% of all our chat partners.
- When the session is interrupted, 80% of such pauses are due to 20% of distractions. For example, staying with the previous example, most of the time unexpected pauses at work are caused by glancing at our phone - not by multiple factors in similar proportions.
- Also, the 80% of sport results is only due to the useful 20% of actions that make up the training.
- Internal combustion engines operate at an efficiency of only 20%, 80% of energy is lost
Dr. Joseph Juran added to Pareto's thoughts by saying that the 80% of problems in the business world are also responsible for the 20% of problem sources. That is, for example:
- 80% of the production loss is due to the operation of 20% of the production assets.
- 80% of workers suffer from stress and demotivation at work, compared to 20% of workers.
And vice versa:
- 20% of employee work will generate 80% of revenue.
- 20% of products will generate 80% of a company's profit.
- As 20% of the customers (returning customers) will give 80% of the revenue.
The Pareto principle is important because by recognising it, a company can better focus on its true strengths, its most useful 20%, and maximise their effectiveness.
Some more marketing examples of how the Pareto principle works:
- 20% of the ads displayed will reach people who will then generate 80% of the traffic.
- 20% of views of a video will give you 80% of conversion.
- The 20% of a website will give you the 80% of sales.
Increasing the efficiency of time management
Running a company for many years, it is almost certain that 80% of the profit is generated by 20% of the activities. This means that the management's time is not always right either, since, for example, barely a fifth of the meetings produce good long-term results.
The Pareto principle actually helps to simplify. Take a project management process, for example: many people make the mistake of thinking in terms of too broad a product range before they enter the market. Because of this, it is almost inevitable that the 80% of products end up as add-on products and do not bring any significant profit to the business.
In the same way, the daily work can be tackled by applying the 80/20 rule. Get your to-do list in front of you and prioritise! If you have 10 tasks to do, pick the two most important ones first.Once you've done these, you've probably completed the most useful and important 80% of your day's work. All other tasks are just extra.
The Pareto principle as a starting point and a compass
The Pareto Principle can help a lot in planning, as it can be a starting point to identify areas of the business where optimisation is needed. This diagnosis can be an effective basis for making the necessary changes, and then other methods can be used, such as SMART goals to set.
The Pareto principle is present in every aspect of our lives, and it is not about breaking the 80/20 rule and seeking to 'flatten' or improve the ratio. Rather, it is to identify the truly useful 20% and to reinforce it, with an additional focus on those activities that generate real profit for the company.
Have a question? Contact us!
Unsure how to apply the Pareto principle in your work? Do you have other questions about process, time or project management? Contact us for more information!
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