Meaning & Definition

80 20 rule (pareto principle)

The 80/20 rule, or Pareto Principle, is a management concept suggesting that 80% of outcomes result from 20% of causes. In performance management and business decision-making, it highlights the importance of identifying and focusing on the critical few factors that drive the majority of results. For instance, a company might find that 80% of its revenue comes from 20% of its customers. Applying this principle helps in prioritizing efforts and resources on the most impactful areas, leading to more efficient and effective management practices. It encourages organizations to concentrate on high-value activities to maximize performance and productivity.