Understanding the Pareto Principle (The 80/20 Rule)

Originally, the Pareto Principle referred to the observation that 80% of Italy’s wealth belonged to only 20% of the population.

More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:

20% of the input creates 80% of the result
20% of the workers produce 80% of the result
20% of the customers create 80% of the revenue
20% of the bugs cause 80% of the crashes
20% of the features cause 80% of the usage
And on and on…

But be careful when using this idea! First, there’s a common misconception that the numbers 20 and 80 must add to 100 — they don’t!

20% of the workers could create 10% of the result. Or 50%. Or 80%. Or 99%, or even 100%. Think about it — in a group of 100 workers, 20 could do all the work while the other 80 goof off. In that case, 20% of the workers did 100% of the work. Remember that the 80/20 rule is a rough guide about typical distributions.

Also recognize that the numbers don’t have to be “20%” and “80%” exactly. The key point is that most things in life (effort, reward, output) are not distributed evenly – some contribute more than others.

Life Isn’t Fair

What does it mean when we say “things aren’t distributed evenly”? The key point is that each unit of work (or time) doesn’t contribute the same amount.

In a perfect world, every employee would contribute the same amount, every bug would be equally important, every feature would be equally loved by users. Planning would be so easy.

But that isn’t always the case:

The 80/20 rule observes that most things have an unequal distribution. Out of 5 things, perhaps 1 will be “cool”. That cool thing/idea/person will result in majority of the impact of the group (the green line). We’d like life to be like the red line, where every piece contributes equally, but that doesn’t always happen.

Of course, this ratio can change. It could be 80/20, 90/10, or 90/20 (remember, the numbers don’t have to add to 100!).

The key point is that most things are not 1/1, where each unit of “input” (effort, time, labor) contributes exactly the same amount of output.

So Why Is This Useful?

The Pareto Principle helps you realize that the majority of results come from a minority of inputs. Knowing this, if…

20% of workers contribute 80% of results: Focus on rewarding these employees.
20% of bugs contribute 80% of crashes: Focus on fixing these bugs first.
20% of customers contribute 80% of revenue: Focus on satisfying these customers.

The examples go on. The point is to realize that you can often focus your effort on the 20% that makes a difference, instead of the 80% that doesn’t add much.

In economics terms, there is diminishing marginal benefit. This is related to the law of diminishing returns: each additional hour of effort, each extra worker is adding less “oomph” to the final result. By the end, you are spending lots of time on the minor details.

A Fun, Non-Math Example, Please

Everything is nice and rosy in the abstract. I want to give you a real example. Take a look at this awesome video of an artist drawing a car in Microsoft Paint. It’s pretty phenomenal what can be accomplished with such a basic tool:

Now let’s deconstruct this video. It’s about 5 minutes long, so each minute is about 20% of the way to completion (of course the video is sped up, but we are only interested in relative times anyway). Take a look at how the car evolved over time:

1:06 (Level 1) – Wireframe
2:00 (Level 2) – Basic coloring
3:05 (Level 3) – Beginning details: rims, windshield
4:04 (Level 4) – Advanced details: shading, reflections
5:05 (Level 5) – Finishing touches: headlights, background

Now, let’s say the artist was creating potential designs for a client. Given 5 minutes of time, he could present:

A single car at top quality (Level 5)
A reasonably detailed car (Level 3) and a colorized wireframe (Level 2)
5 cars at a wireframe level (5 Level 1s)

“But #5 is way better than #1!!!” someone will inevitably shout.

The point isn’t that #5 is better than #1 — it clearly is. The question is whether #5 is better than five #1s, or some other combination.

Let’s say your customer doesn’t know whether they want a car, a truck, or a boat, let alone the color. Spending the time to create a Level 5 drawing wouldn’t make sense — show some concepts, get a general direction, and then work out the details.

The point is to put in the amount of effort needed to get the most bang for your buck — it’s usually in the first 20% (or 10%, or 30% — the exact amount can vary). In the planning stage, it may be better to get 5 fast prototypes rather than 1 polished product.

In this example, after 1 minute (20% of the time) we have a great understanding of what the final outcome will be. Most of the “work” is done up front, in the sense of deciding the type of vehicle, body style, and perspective. The rest is “filling in details” like colors and shading.

This isn’t to say the details are easy — they’re not — but each detail does not add as much to the picture as the broad strokes in the beginning. The difference between #4 and #5 is not as great as #1 and #2, or better yet, a blank drawing and #1 (the time from 0:00 to 1:06). You really have to look to see the differences on the car between #4 and #5, while the contribution #1 makes is quite obvious.

Concluding Thoughts

This may not be the best strategy in every case. The point of the Pareto principle is to recognize that most things in life are not distributed evenly. Make decisions on allocating time, resources and effort based on this:

Instead of 1 hour on a rough draft for an article you may write, spend 10 minutes on 6 outlines for a paper / blog article and pick the best topic.
Instead of investing 3 hours on a website, spend 30 minutes and create 6 different template layouts.
Rather than spending 3 hours to read 3 articles in detail (which may not be relevant to you), spend 5 minutes glancing through 12 articles (1 hour) and then spend an hour each on the two best ones (2 hours).

These techniques may or may not make sense – the point is to realize you have the option to focus on the important 20%.

Lastly, don’t think the Pareto Principle means only do 80% of the work needed. It may be true that 80% of a bridge is built in the first 20% of the time, but you still need the rest of the bridge in order for it to work. It may be true that 80% of the Mona Lisa was painted in the first 20% of the time, but it wouldn’t be the masterpiece it is without all the details. The Pareto Principle is an observation, not a law of nature.

When you are seeking top quality, you need all 100%. When you are trying to optimize your bang for the buck, focusing on the critical 20% is a time-saver. See what activities generate the most results and give them your appropriate attention.

51 Comments

Posted March 8, 2007, under Observations
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Comments

It exist an outdated network designer rule that’s called “The 80/20 rule”. It says that 80% of the network traffic should be internal and 20% should be external. Today it’s more like 20/80 ^^

Megamannen — June 6, 2007 @ 12:26 pm
My “Strategic Management of Technology and Innovation” class loved this interpretation of the “Pareto Principle”. It was done with a video they could relate to.

christina hendrix — November 12, 2007 @ 7:26 pm
Hi Christina, I’m glad your class liked it! Yes, there’s many examples out there which are more interesting than “Worker A does 80% of his work in 20% of the time”. Thanks for dropping by.

Kalid — November 13, 2007 @ 12:04 am
Kalid, your site is great! Regarding the Pareto principle, have you read Mandelbrot’s book “The (Mis) Behavior of Markets?” His was the first treatment I’d encountered of Pareto’s work, and was very enlightening.

Bernard McDevitt — November 29, 2007 @ 9:34 am
Hi Bernard, thanks for the comment! That sounds like an interesting book, I’ll have to add it to the reading list

Kalid — December 1, 2007 @ 3:06 pm
Lovely page to explain the Pareto principle … and the videos to support the understanding are excellent. Hope to see such pages on more topics.

Amit Chauhan — December 17, 2007 @ 11:57 pm
Thanks Amit! I like finding different explanations for things (vs. using typical “business” metrics like worker productivity), and I’m glad you enjoyed it. I’ll try to keep the posts coming.

Kalid — December 18, 2007 @ 12:45 am
Have been using this concept, just didn’t know it had a name…and such structure.

I do collage assembly for stress management issues. In order to clarify focus for a topic/theme for the collage the questions asked require one to seperate behavior from emotions.

80% of the behavior is dictated by 20% of our emotions.

example:
Person acts angry all the time. They are short tempered and easily angered. They snap at any correction or observation no matter how well intended. They are on the defensive and always in hyperdrive…Seemily “manic” or “hyperactive” may even be called ADHD or ADD. In reality they are suffering from the 20% piece which is…ALIENATION
and are hypervigilant in behavior…to protect their base. Therefore 80% of their behavior is run by 20% of their emotions.

It does not add up to 100% of who this person is. It merely outlines behavior especially under negative stress. 20% of emotions effect 80% of behavior.

When setting up for a collage, the question asked is…”What does angry look like? The collage demonstrates the truth in the 20%…and the results yield that the person is acting angry ( the 80% piece)…because of their isolation. The 20% piece is unveiled.

Am I applying it properly?

Thanks….I enjoyed the article.

Matilda — January 28, 2008 @ 12:10 pm
Hi Matilda, thanks for the comment! It’s hard to apply this rule to things that can’t be measured (like emotions), but the general principle may apply: a few events may determine the majority of our behavior. One argument in the morning could put you in a bad mood for the entire day.

The general idea behind the Pareto principle is that “not all things are equal” — some contribute more than others. 80/20 is a general rule of thumb, but for things that can’t be quantified (like emotions), the concept that some things count more than others is probably the key insight. Hope this helps.

Kalid — January 28, 2008 @ 1:11 pm
Thank you Kalid for that explination. It does help. The way I translate it in emotional measure is…. no matter how bad some of my experiences have been, or for how long some painful situations have lasted…because “not all things are equal”…it only takes one smile or one act of kindness or one happy memory to ballance out a ton of sadness…at least for me. I find equilibrium in the simple things of life…

That is how I apply the Pareto priciple..thank you for this sense of community…it ballances out a ton of having my ideas and opinion passed over.
Matilda

Matilda — January 31, 2008 @ 6:11 pm
I have a much better understanding of the Pareto principle after reading this article, thanks!

Jeffrey Garrison — February 27, 2008 @ 7:37 pm
@Matilda: You’re welcome, that’s an interesting way of looking at this idea which is usually limited to math/financial topics

@Jeffrey: Glad you enjoyed it!

Kalid — February 27, 2008 @ 7:57 pm
It’s interesting.

While 80% of the physical difference comes in the first fifth, 80% of the emotional impact comes from the last fifth. Car #4 looks pretty stale and cartoony, while car #5 is what I’d call awesome.

Your example is actually two levels deep, at least.

Alrenous — March 14, 2008 @ 6:23 pm
Hi Alrenous, that’s a really interesting way to look at it. I hadn’t thought about the other types of impact operating in reverse — from a psychological point of view, it’s the final 20% that brings it to life. Thanks for the comment.

Kalid — March 14, 2008 @ 7:10 pm
I had not heard of the pareto principle prior to to doing a search on time management google i tried quite a few sites but they didn’t really explain the 80 20 concept to me.

I work in real estate and found this site very helpful it has (I hope) headed me in the right direction

Deb Tuccitto — March 28, 2008 @ 5:48 am
I have been looking for but did not find a discusssion regarding the underlying principles of the 80/20 rule. For example, the rule is only valid where the data items are independent of each other. ie. where there is no interrelationship. For example,from a population point of view, 20% of the population will earn 80% of the income but if they were employed by the same organisation would this still be the case? In this instance, the data is not independent and is significantly influenced by the employment conditions and structure of the organisation. In Australia our capital city (Canberra) is mostly made up of senior public service personnel and I would guess that the 80/20 rule would not apply here because of the reason stateed above.

Anonymous — May 23, 2008 @ 12:40 am
@Deb: Thanks, glad you found it useful .

@Anonymous: You’re right, for items which are uniformly distributed (everyone working the same job in the same company, machines in the same factory, etc.) then the 80/20 rule may not apply.

It’s more of an observation (not law) that many things in life are not uniform — there are hot spots and cold spots, high performers and low. The 80/20 rule is a rough estimate about how much of an effect the “critical” 20% has in situations where everything is not the same.

Kalid — May 23, 2008 @ 12:23 pm
Hi,

This is a very informative article. I do research on equities. It has helped me in analyzing my portfolio. 80% of my portfolio�s return is from my 20% of top stocks. I think this prove the theory. But it doesn�t mean that those 20% of stocks which were/are yielding me 80% of profit will remain constant. We need to constantly keep analyzing which are the top performing stock and major contributors to my return.

Thanks for this article. Hope to read more on this, and many others.

Vishal — June 13, 2008 @ 7:49 am
Thanks Vishal! Yes, many things in life have an 80/20 distribution. But as you say, *which* 20% can change over time — nice observation!

Thanks for the comment.

Kalid — June 13, 2008 @ 11:16 am
Truth is …all i wanted was to u/stand 80/20 princple which gets mentioned frequently at the office. Thanks to you and your simple anology of the 5 steps of “creating” a car. By the way i just thought of spending a few minutes of my time – kind of summary reading” on Pareto, yet ended up spending an hour. In many ways my actions and understanding can be equated to 80/20 principle. I spend 20 minutes of my time going over your theory along with the rest of your comments who frequent your site AND I ended up being 80% more aware of Pareto Principle.

In short… many thanks and God Bless

Carmichael Singh — June 23, 2008 @ 9:16 pm
Thanks for your explanation, it’s the best I’ve found after just discovering the so-called “Pareto Principle”.

However, I really think everyone’s making a big deal out of nothing.

Principle?

So, some guy discovers that 80% of the wealth is held by 20% of the population. Okay, that’s nice. I guess before that no one knew that there are less rich people than poor people. Or maybe they just didn’t have a nice set of percentages to work with – in any case, the information interesting, but is not all that useful unless you’re trying to start a revolution or something.

Then, later on, someone notices that something else has an 80/20 relationship and we decide this 80/20 thing must be a law of nature?

Of course, in any system, there will be interesting relationships to be discovered. But now, every time that relationship is discovered to be 80/20 someone’s bound to pipe up with “Aha! It’s another example of the Pareto Principle!”.

Since this is the case and people have an easier time remembering things when they have a name to invoke, I would like to proclaim here and now that I have discovered that many things do NOT exhibit an 80/20 relationship and I call this the “Marty Principle”.

The way I see it is: we human beings like to put things in neat little boxes of sameness – and that’s all that’s happened here.

Usefulness?

This principle isn’t something anyone should use for managing or deciding how many bugs should be fixed – what people should use is common sense. If someone is goofing off all the time, fire them. If the last 20% of bugs aren’t critical and don’t cause any data loss – maybe the product can ship with the known issues.

If you think you can get away with (or even want to try) only giving 20% of your employees raises or providing support to only 20% of your customers, you probably shouldn’t be in business. Or. what if you stopped work on a building when it’s 20% complete (since you figure 80% of the traffic will only be using the Starbucks on the first floor)?

You can’t use this principle to your advantage like this. You have to complete work and support your entire customer or employee base. If you then notice that there’s an 80/20 relationship in there somewhere, so what? Nice to know, but not very useful.

Sorry, didn’t mean to write a book. In any case, thanks again for your explanation. You should consider adding it to Wikipedia (or at least helping to rewrite what they currently have).

Cheers!

Marty — December 31, 2008 @ 1:41 pm
I agree with Marty. 80/20 is an observation and it’s usefulness as a management or planing tool is at the best questionable. I wonder how many people would feel comfortable to fly with the airline which announced that it has fixed 20% of the problems with their aircrafts because those 20% caused 80% of the crashlandings. Good luck for them to find willing passengers. It is a poor excuse to use the 80/20 principle not to do things right.

Cas — February 12, 2009 @ 3:58 pm
Marty, I just came across this site and read your comment. I understand what you are saying, however, a lot of companies are already just giving rewards to the employess that are performing more than others. A lot of us know these as “performace bonuses.” After companies review their financial, they set goals to be met by their sales, service, parts, etc… and reward them with cash for a a job well done. Some companies do fire employees that do not make their bonus more than two/three consecutive times in a row.

A lot of retailers reward their main customers all the time. When you go to a store and they have those cards that state, free meal after 8th visit, or free hair cut after 10th visit, etc.. You may not use them, but you will be surprise how many of their loyal customers take advantage of those discounts. The stores know that they can’t just offer a discount to just the 20% that bring them 80% of their income, so they offer it to everyone, but it is usually the 20% that just take advantage of it.

I agree with you that people like things packaged and handed to them on a platter, but this is a great principle to help someone realize that nothing in life is 50%/50%. Oh, as for the 20% of the people that brings you income, I don’t think that he meant ignore the 80% percent. He was just stating, that most people would focus on getting that 80% and forget about the 20% that was bringing in the main money. I believe he was mentioning to keep in mind of your 20% and work on adding some of your 80% to your 20%.

Thanks,

Eric

Eric — March 16, 2009 @ 7:44 pm
thank you for the explanation
it was great, extremely easy to understand. thank you again.

andrew — July 13, 2009 @ 12:12 am
@Marty, Cas, Eric: Thanks for the discussion!

Yes, blindly following the 80/20 principle could lead to some very unwise decisions. I think the goal is to realize that not everything is distributed evenly; if you’re having a problem with your software, focus on fixing the few issues that seem to affect the most people first. If you have 5 bugs, it might turn out that fixing the first one (20%) reduces most of the pain for people. But you should still fix the others . In the end, it’s about getting the best bang for your buck (or hour of work).

@Andrew: Glad it helped!

Kalid — July 13, 2009 @ 12:30 am
I need to ask a question! Since the whole principle is based on maximising time and boosting efficiency, can it be used in the following circumstance – I need to buy bread as breakfast for a 100 people, but not all of them may want it because they can get better food elsewhere, or they may want to skip breakfast.

I still have to provide some bread in the end, but it would be unwise to buy a 100 pieces of bread because not everyone would want it. Would it be safe to take on the 20:80 ratio, and go on to conclude that for a 100 people, I only need 25 pieces of bread?

Just wondering if the principle can be applied to this situation as well, even though its more applicable to time management. Thanks!

Sludgie — September 12, 2009 @ 10:17 am
I think you’d need 80 pieces of bread!
I recently went to a dinner where we all ordered the banquet. The meals were all delivered at the other end of the table from where I sat. I’m sure 20% of the guests ate 80% of the food and I went home hungry. I still paid 100% of my share though. That certainly didn’t add up for my belly!

Judith — November 12, 2009 @ 1:28 am
I have 2 children and am greatly obsessed with their education. I think that Pareto principle could be greatly used in schools to compress the time needed to learn something useful.

Taking even an odd example: the alphabet. Its 20% of the letters that make 80% of words. Sure you still need the rest to use the language, but the point is that you can focus firstly on the 20% of most used letters (numbers, whatever) and have kids understand the use of it.

A revolutionary idea would be to have only 20% of education at school, with the rest get acquired at later stages, evenly distributed through the life.
Someone needs to find out what knowledge required for the most results.

Alex — November 19, 2009 @ 7:52 pm

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