80-20 Rule Definition

The 80-20 rule is a well-known principle that states that 80% of the results/outputs come from 20% of the inputs/causes. In other words, only a small proportion of causes result in disproportionate effects. This rule is also known as the Pareto Principle.

The 80/20 rule in business aims to prioritise inputs with the highest potential for productivity and to identify requirements. It assists in determining and concentrating on the essential elements to maximise value while delegating the least significant ones. Managers should, for example, concentrate their efforts primarily on the aspects they have identified to be crucial to the growth of their organisation.

Even though the 80-20 rule is commonly employed in economics and business, it may be applied to any other area too. The 80-20 rule can be applied to various situations, including wealth distribution, individual financial management, and spending patterns.

Understanding the 80/20 Rule

Vilfredo Pareto, an economist from Italy, introduced the Pareto Principle in 1896. He noticed that only 20% of the population in Italy held 80% of the land and saw the same thing happen to his garden's plants, where 20% of the plants produced 80% of the fruit. It is critical to recognise that the 80/20 Rule is not based on any mathematical formula. Rather, it is an insight that explains the relationship between effort and result.

The 80/20 rule is frequently used to illustrate how 20% of a company's customers are responsible for 80% of its revenue. When seen in this light, it could be beneficial for a business to concentrate on and promote to the 20% of customers who account for 80% of revenues. Thereby, the business might be able to keep current clients while acquiring new clients with comparable traits.

The 80-20 rule is fundamentally about recognising an organisation's strongest assets and making optimal use of them to generate the most value. For instance, a person should determine which activities will be most helpful for the work and concentrate on those first. The person should not, however, disregard the other aspects of the work because of this.

Example

A student works on a project for his digital marketing class. The assignment is to start a blog and keep track of it throughout the course.

The website was developed, built, and launched by the student. The professor assessed the blogs at the halfway point of the course. Although the student's blog had gained some attention, it received the least traffic compared to other classmates' blogs.

After that, he came across an article on the 80-20 rule. It has stated that the principle could be applied to any industry. As a result, he started to consider how he could use the 80/20 rule in his blog project.

He thought his website received relatively fewer visitors, despite all of his efforts. He then realised that, despite how amazing a piece of information may be if no one reads it, it virtually has little value. He reasoned that the blog might not be the main issue but how he was marketing it.

He decided to allocate 80% of everything that went into developing the blog, along with its content, in accordance with the 80-20 rule. A subset of the blog's readers would stand in for 20%.

He employed web analytics to monitor the blog's traffic. He asked questions like:

• Which sources account for the top 20% of visitors to my blog?
• Who are the top 20% of my target audience members?
• What are the general characteristics of this audience?
• What blog posts make up the top 20% of my most popular topics in terms of content?

After examining the answers, he made the following adjustments to his blog:

He tweaked the blog's style and persona to appeal to his top 20% target group. He rewrote certain information to better fit the needs of his target audience.

Notably, while his investigation confirmed that the blog's main issue was its marketing, he did not dismiss its content. He remembered the frequent misconception-if 20% of inputs are the most significant, then the remaining 80% may be unimportant-and he didn't want to commit that mistake. He was aware that addressing issues of the content was also required.

By employing the 80-20 principle in the blog project, he gained a deeper understanding of his audience and, as a result, targeted his top 20% of readers more strategically. He revised the blog's layout and content in light of what he had found, and as a result, traffic to his website increased by more than 250%.

Advantages of the 80/20 Rule

• Assists in identifying and focusing on critical inputs, leading to better time management and results.
• Improved business leadership as a result of increased communication with team members regarding how to manage activities that have been delegated.
• Effective task sorting and prioritisation, which aids in clear goal formulation.
• The Pareto Principle is significant in all aspects of life, from business management to personal interactions to time management.
• Businesses employ it to determine which kind of customers and clients to keep and obtain in order to increase their earnings.

Drawbacks of the 80-20 Rule

Many may be unaware that the 80-20 rule is a precept and not a set law of mathematics. The 80-20 rule can be misunderstood as if 20% of inputs are the most significant, the remaining 80% might be unimportant. Even if the 20% is chosen as the top priority, the other 80% may still be significant (one has to focus on this too).

Team members may become overly concentrated and lose sight of other duties, which is another drawback of the 80/20 rule. Things can get lost if one just concentrates on crucial activities and ignores the less crucial ones, such as email and other communications. The problem is striking the correct balance between employing the 80/20 rule and completing the remainder of the tasks-even if they don't produce 80% of the outcomes.