In the late 1800s, Italian economist Vilfredo Pareto was tending his garden when he made a small discovery that would have huge implications.
He noticed that a minority of the pea pods in his garden produced a majority of the peas. And that got him thinking about economic output on a larger scale. Could this unequal distribution be taking place in other areas as well?
At the time, Pareto was studying the wealth of different nations. And as he started analyzing the distribution of wealth in his home country, he indeed found that about 80 percent of the land in Italy was owned by just 20 percent of the population. Expanding his work into other countries, Pareto found that a similar distribution applied in those places, too.1
Similar to the pea pods in his garden, the majority of resources were controlled by a minority of the group. And as he continued his research in various societies, industries, and even companies, this trend turned out to be remarkably consistent. The numbers were never quite the same, but the approximate 4-to-1 ratio kept showing up.
The 80/20 Principle in Business
Over time, this idea—that a minority of things account for the majority of results—became known as the Pareto Principle or, as it’s commonly referred to these days, the 80/20 principle.2
Since Pareto’s discovery, the 80/20 principle has been most popular in business settings. Companies have often found that, for example:
- 20 percent of their customers brought in 80 percent of their revenue.
- 20 percent of their sales reps closed 80 percent of their sales.
- 20 percent of their costs made up 80 percent of their total expenses.
And that’s valuable information that can help increase efficiency and profits for companies.
The 80/20 Principle in Life
The 80/20 principle is just as useful outside of business. You can ask yourself, for instance:
- Which 20 percent of your relationships create 80 percent of your happiness?
- What 20 percent of your daily habits account for 80 percent of your well-being?
- What 20 percent of your stuff do you use 80 percent of the time?
And those are just a few examples, of course. The 80/20 principle is very useful anytime you want to figure out the most impactful causes and efficient actions.
In fact, it’s a great way to read this website. As you explore the articles, think about which 20 percent of them that will provide 80 percent of usefulness to you. Then read those ones first.
Get into the habit of thinking 80/20, and you’ll spend a lot more time on what’s truly essential.
This article is an excerpt from my book The Decision-Making Blueprint.