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Pareto Principle

Definition

An observation that almost everything in the world has an uneven distribution — 80% of effects come from 20% of causes.

The principle applies to numerous circumstances:
80% of results come from 20% of efforts.
80% of sales come from 20% of customers.
And so on.

The connection between inputs and outputs is not equivalent, and that is actionable.

Why Use It

Applying the principle can expose unseen patterns, and in revealing a disparity, there is an opportunity to affect change.

When to Use It

By assessing what factors are driving a given circumstance, one can better approach resource allocation. For example, if 20% of customers cause 80% of support tickets, solving their pain points becomes a priority. You stand to gain more satisfied customers and productive teams due to identifying the principle in action and then alleviating its negative consequences.

How to Use It

There is a wide range of areas where the principle occurs, from manufacturing to time management.

When managing projects, 20% of the effort often produces 80% of the results. In that regard, it can clarify where to focus your time.

When analyzing site traffic, 20% of content drives 80% of users to your pages. Optimizing and iterating on future content creation through that lens will drive more eyeballs.

The principle is an example of a “power law” relationship; it can be applied mathematically and occurs in natural phenomena such as earthquakes. In math the 80/20 rule corresponds to α = log(5)/log(4) ≈ 1.16, 90–10.

How to Misuse It

First, the principle is not a pie chart: inputs and outputs cannot be transposed onto that graphical representation because they are not the same.

Second, there are times where you might ignore the 80/20 rule. For example, if learning a skill takes two years, mastering it takes eight more, then optimization is not required. The investment of time is relevant to mastery.

And finally, some observations, such as wealth disparity, where the wealthiest 20% of the world’s population generate 80% of the world’s income, are not as easily actionable. The principle helps conclude that the minority owns the majority, and the solution is myriad.

Next Step

Most things in life don’t have an even distribution. As such, seeking out ways to maximize the highest output is helpful, but sometimes, even when you find the dynamic, it’s simply unactionable.

Recognizing the places where the principle can drive the most value is as important as taking action.

Where it Came From

Vilfredo Pareto, born in 1848, observed the imbalance between landowners in Italy as a Pareto distribution (a power law probability distribution). The principle was introduced in 1897, named after him, and expanded to encompass many other areas and applications.

What Are Mental Models?

Mental models are thinking tools that help guide and shape our perceptions of the world. They simplify complexity so we can understand life better, make decisions confidently, and solve problems.

Deep Dive Into Mental Models

Deep Dive Into Mental Models

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