What is the 80-20 rule?
The 80-20 rule is an aphorism, which states that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for a given event. In business, an objective of the 80-20 rule is to identify and prioritize the potentially most productive inputs. For example, once a manager identifies the factors that are essential to the success of his business, then she must give them the most attention.
Although the 80-20 axiom is frequently used in business and economics, you can apply the concept to any field, such as wealth distribution, personal finance, spending habits and even infidelity in business. personal relationships.
The Pareto principle (rule 80-20)
Understand the 80-20 rule
You can think of the 80-20 rule as a simple cause and effect: 80% of the results (outputs) come from 20% of the causes (inputs). The rule is often used to point out that 80% of a company’s revenue is generated by 20% of its customers. Seen from this perspective, it could be beneficial for a business to focus on the 20% of customers who are responsible for 80% of the revenue and market it specifically for them – to help retain these customers and acquire new customers. similar characteristics.
Basically, the 80-20 rule is to identify the best assets of an entity and use them effectively to create maximum value. For example, a student should try to identify the parts of a textbook that will create the most benefit for an upcoming exam and focus on those first. This does not mean, however, that the student should ignore other parts of the textbook.
The 80-20 rule is a precept, not a hard and fast mathematical law. In the rule, it is a coincidence that 80% and 20% are equal to 100%. Inputs and outputs simply represent different units, so the percentage of inputs and outputs does not have to be 100%.
The 80-20 rule is often misinterpreted. Sometimes the misunderstanding is the result of a logical error – that if 20% of the inputs are the most important, the remaining 80% should not be. At other times, confusion arises from the coincident sum of 100%.
Basically, the 80-20 rule is to identify the best assets of an entity and use them effectively to create maximum value.
Special Considerations: Background
The 80-20 rule, also known as the Pareto principle, was used for the first time in macroeconomics to describe the distribution of wealth in Italy in the early 20th century. It was introduced in 1906 by the Italian economist Vilfredo Pareto, best known for the concepts of Pareto efficiency. Pareto noted that 20% of the pea pods in his garden were responsible for 80% of the peas. Pareto extended this principle to macroeconomics by showing that 80% of wealth in Italy belonged to 20% of the population.
In the 1940s, Dr. Joseph Juran, prominent in the field of operations management, applied the 80-20 rule to quality control for commercial production. He demonstrated that 80% of product defects were caused by 20% of problems in production methods. By focusing on and reducing 20% of production problems, a company could increase its overall quality. Juran invented this phenomenon “the small vital number and the small number”.
Key points to remember
- The 80-20 rule maintains that 80% of the results (outputs) come from 20% of the causes (inputs).
- In rule 80-20, you prioritize the 20% of the factors that will produce the best results.
- A principle of the 80-20 rule is to identify the best assets of an entity and use them effectively to create maximum value.
- This “rule” is a precept, not a hard and fast mathematical law.
Benefits and validity of the 80-20 rule
Although there are few scientific analyzes that prove or disprove the validity of the 80-20 rule, there is a lot of anecdotal evidence that the rule is essentially valid, if not numerically exact.
Vendor performance results across a wide range of businesses have demonstrated their 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 into their practices with good results.
Example of rule 80-20
A true story
Harvard graduate student Carla was working on an assignment for her digital communications class. The project consisted of creating a blog and following its success during a semester. Carla designed, created and launched the site. Halfway through, the professor carried out a blog evaluation. Carla’s blog, although it has achieved some visibility, has generated the least traffic compared to the blogs of her classmates.
When to apply the 80-20 rule
Carla came across an article on the 80-20 rule. Because she said you can use this concept in any field, Carla started to think about how she could apply the 80-20 rule to her blog project. She thought: I spent a lot of time, my technical capacities and my writing expertise to create this blog; however, despite all this energy expended, I receive very little traffic to the site.
She knew that even if the content was spectacular, it was almost worthless if no one reads it. Carla deduced that her marketing of the blog was perhaps a bigger problem than the blog itself.
To apply the 80-20 rule, Carla decided to assign her “80%” to everything that was created in the blog, including its content; and as her “20%”, she designated visitors to the blog.
Using web analytics, Carla focused closely on blog traffic. She asked:
- What sources make up the top 20% of traffic to my blog?
- What are the 20% of my most visited audience that I want to reach?
- What are the characteristics of this audience as a group?
- Can I afford to invest more money and effort to satisfy my first 20 readers?
- In terms of content, which blog articles make up the top 20% of my top performing topics?
- Can I improve these topics and get even more traction from my content than I have now?
Carla analyzed these questions and edited her blog accordingly:
- She adjusted the design and personality of the blog to align with those of her target audience, the top 20%.
- She rewrote content to better meet the needs of her target reader.
Although her analysis confirmed that the biggest problem with the blog was its marketing, Carla did not ignore its content. She remembered the common error cited in the article – if 20% of the inputs are the most important, then the remaining 80% must be unimportant – and did not want to make this error.
By applying the 80-20 rule to her blog project, Carla better understood her audience and targeted her top 20% of readers in a more targeted manner. She reworked the structure and content of the blog based on what she learned, and traffic to her site increased by more than 220%.