finance
Pareto Principle (80/20 Rule)
Roughly 80% of effects come from 20% of causes. The lens that reveals where leverage lives.
Definition
The Pareto Principle - the 80/20 rule - observes that in many systems, roughly 80% of effects come from roughly 20% of causes. In business: 80% of revenue often comes from 20% of customers, 80% of profit from 20% of products, 80% of problems from 20% of customers, 80% of value from 20% of activities. The principle is descriptive (the actual ratios vary) but the lens is powerful: it forces you to ask 'which 20% creates 80% of the outcome?' and focus there.
In your business
- →Run a 20/80 audit of customers - which 20% drive 80% of profit? Serve them better, raise prices on the rest
- →Audit your time the same way - the 20% of activities that drive 80% of results
- →Cut the bottom 20% of customers, products, activities annually - they consume disproportionate resources