The Pareto Principle in business or 80:20 rule is an observation that asserts that 80% of outcomes result from 20% of causes or inputs.
While building a business is hard work, most entrepreneurs do not realise that the biggest hack to doing business is identifying the tasks to prioritise. Sometimes, business owners spend so much time on things that may not contribute to a business’s success. For example, a business owner may worry hard about not generating new customers instead of nurturing the existing ones. In business or life, it is important to prioritise spendings, tasks, investments and operations that bring the best impact.
You may wonder how this relates to the Pareto Principle. Continue reading this article to find out how to use Pareto Principle in business.
What is the Pareto Principle?
The Pareto Principle is named after an Italian Economist Vilfredo Pareto. In the 19th century, Vilfredo Pareto discovered that only 20% of the pea pods he planted in his garden were responsible for 80% of the pea harvest.
He also noted that 80% of Italy’s wealth at that time belonged to 20% of the population. Vilfredo applied this to other areas and observed that the principle applies to many aspects, events, and life activities. The Economist concluded that 80% of results come from 20% of efforts.
It wasn’t until the 1940s that the term ‘Pareto Principle was coined after Dr. Joseph Juran applied Vilfredo Pareto’s theory to business operations management.
Juran found out that 80% of product defects from a business he managed were caused by 20% of problems with the production methods. He then made a suggestion that reducing the 20% of the problems would increase the quality of the products. It worked!
How Pareto Principle Works?
At its core, Pareto Principle underscores the need to focus your energy and time on aspects of life, business, decisions, or tasks that get you the best results. It is about identifying the areas that bring the best result and focusing on them without ignoring less successful areas. Some general examples of Pareto Principles include:
- 80% of a company’s revenue comes from 20% of its customers
- 20% of a company’s products represent 80% of the profit gained
- 20% of investment brings about 80% of the investment gains
- 80% of errors can be attributed to 20% of bugs or problems.
Note that the percentages 80% and 20% may not always add up, as the general concept of the principle is that only a small minority of inputs or actions is responsible for a large majority of the outputs or consequences.
In business, the goal of the Pareto Principle is to identify tasks and inputs that are most productive for your business so you can give your most attention to them.
Pareto Principle or 80/20 Rule in Business
The idea of the Pareto Principle or 80:20 rule in business and the workplace is that 80% of your business results come from just 20% of your efforts.
It could also mean:
80% of your total sales come from 20% of your customers.
Based on this theory, managers and business owners can focus on the 20% of the clients responsible for 80% of the company’s revenue.
By doing so, the company will be able to retain those clients, nurture the relationship with them and search for potential customers with the characteristics to become one of those 20%.
The core principle of the 80:20 rule is identifying the best tasks and assets in your company and then looking for ways to use them efficiently for the best impacts. For example, a marketer should identify the campaigns that have the most reach and focus on creating those types of campaigns. This, however, does not mean the business should ignore other types of marketing campaigns.
Business owners can always ask themselves these questions to make sure they are focusing on tasks that matter:
- Which of my tasks will have the biggest impact on my business?
- Which task should I focus on, and which should I worry about less?
- Which marketing spendings bring the greatest ROI?
How to Use The Pareto Principle To Boost Productivity
If you are a business owner who wants more returns from your business or a worker who wants to boost her productivity, applying the Pareto Principle can help turn your life around. Also, business owners can use the Pareto rule to improve business performance and maximise value.
Here are some tips and steps on how to use Pareto Principle in business:
1: Identify the Most Impactful 20% of Your Tasks
The first step to applying the Pareto Principle is to identify the most impactful of your tasks. To do this, you might want to list out your tasks or business operations one after the other and then categorise them into A, B, and C, where:
- A are tasks with the most impact
- B are tasks with less impact than A and
- C are tasks with the least impact.
2. Prioritize 20% of The Most Impactful Tasks
Now that you have categorised into A, B, and C, try prioritising the tasks you categorised in A. Shift your major focus into the tasks and outsource or delegate the other tasks to your team members.
Advantages of the Pareto Principle in Business
As mentioned earlier, Pareto Principle can be applied to different areas, including business, sports, relationships, and so on.
Here are some advantages of the Pareto Principle in business:
1: Customer Retention
Pareto Principle can help companies identify their best customers and determine strategies to retain them. Also, it can help a company gain more customers with the same characteristics as their best customers.
For example, if you notice that 20% of the customers responsible for 80% of your company’s profit reside in a specific location or are of a specific gender, you may decide to tailor your marketing campaigns towards an audience with similar characteristics.
2. Marketing ROI
Pareto Principle can help you identify the marketing channels or campaigns that bring the biggest wins for little investments.
3. Product Offerings
You can figure out the products or services that bring the highest revenue to your company and prioritise them accordingly.
4. Profitability
The 80/20 rule can help you identify the smartest investments or revenue streams that bring about the most profits and prioritise them.
5. Productivity
One of the most popular applications of the Pareto Principle is to identify the tasks that contribute to the biggest impact and focus most of your attention on them.
6. Business Operations
You can also identify the problematic business operations that lead to the biggest loss or the best business operations that bring the biggest returns. With this, you can focus on mitigating the defects while expanding the opportunities.

Applying Pareto Principle in Marketing
Marketing is a very important aspect of business as it often determines the number of customers and sales a company makes. How do you determine the channels that bring the most wins? How do you know the strategies to prioritise? That’s where the Pareto rule comes in.
Here are some steps to use the Pareto principle in marketing:
1: Identify your Business Priorities
Whether it’s sports, spending, or business, the first rule to using the Pareto principle is to identify your top priorities. Identifying your priorities may be a little tricky because it depends on many factors, including your company size, stage, business needs and your short/long-term goals.
Are you looking to increase customers’ acquisition rate or improve your campaign reach? Are you? You can apply the 80:20 rule to your business goals for any desired outcome.
2. Identify the Highest-Impact Channels
The next step to applying the Pareto principle in marketing is to identify the channels that bring the best returns. Pareto principles assert that only a few of your marketing efforts or investments will do the most work for your business. So, a good idea would be to identify the most impactful channels and focus on them without neglecting the less impactful channels.
So, which of the channels you use bring the best returns for little spending? Which of the channels do customers use the most?
Once you find the most effective channels, figure out ways to prioritise those channels to improve your marketing efforts.
3. Look for Opportunities to Reprioritize
As time goes on, your most impactful tasks or channels may change. For example, paid advertising may bring you the best returns in Q1 of the year and by Q2, it may have changed to organic search. Always monitor your priorities and look for opportunities to recategorise your tasks or marketing channel. This also applies to products, a product responsible for your highest revenue may be bounced out by another product. In this case, you have to prioritise the new product for the best performance.
Asides from marketing, you can also apply the Pareto Principle in other areas of business, including:
- Business Management
- Sales
- Business Strategy
- Inventory Management
Misinterpretations of Pareto Principles
Many do not know that the 80:20 rule isn’t an actual law. It isn’t a rule, neither is it a hard and fast law or a mathematical equation. Instead, it is an observation which applies to different areas.
This means that the 80:20 rule may not apply to every instance. It also means that the percentages may not necessarily add up to 100%, as it is the concept that matters.
The 80:20 rule asserts that while 20% of inputs are most important, it doesn’t mean the other 80% should be ignored. The concept is to prioritise the 20%, and while doing so, don’t disregard the 80%.
Conclusion
In summary, the Pareto Principle or 80:20 rule aims to help people, including business owners and managers, to prioritise their tasks, identify issues that cause the most problems and focus on business operations that bring the most impacts. Consider applying this principle to different areas of your business, including marketing, business operations and inventory management, for best performance.