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Rachel Siegel, CFA

Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.

 Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.  Rachel has served as Academic Director at Bloomberg, as well as Exam Development Director at the CFA Institute. She holds a BA in English and an MBA, both from Yale University.

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Updated August 22, 2020

What Is the 80-20 Rule?

The 80-20 rule, also known as the Pareto Principle, states that 80% of outcomes arise from 20% of inputs. The idea is applied in business and economics to identify and prioritize the most productive or problematic inputs to maximize value or minimize cost.  

How Does the 80-20 Rule Work?

While the 80-20 rule is widely used in many different fields, from economics to personal finance, it is important to understand that the 80-20 rule is not a scientific or mathematical law—but rather a concept. 

80-20 Rule in Management

In managing others, it means that recognizing and then focusing on the most impactful 20% of workers is the fundamental factor in making the most effective use of your time. Using this principle, if 20% of your staff give you 80% of the work you need, focus on them as they are your core group of impact. 

80-20 Rule in Marketing

Putting the 80-20 rule into effect in marketing is about prioritizing focus. Using this principle, 80% of profits are generated from 20% of customers, 80% of product sales stem from 20% of products, and 80% of sales derive from 20% of advertising. This can help guide your use of marketing, advertising, and customer service resources. 

80-20 Rule in Relationships

Just like in business, the best way to apply the 80-20 rule in relationships is to identify 20% of the obstacles and work on them. Once they are resolved, it will soothe the majority of the relationship issues.

Example of the 80-20 Rule

Examples can be found in many aspects of business.

In a production process, the 80-20 rule would mean that 80% of the output comes from 20% of the input. In a management setting, it may be that 80% of productivity comes from 20% of employees. In customer service, it may be that 80% of the negative customer feedback stem from 20% of the customers.

Is the 80-20 Rule the Same as the Pareto Principle?

The 80-20 rule and the Pareto principle are the same, and the terms are used interchangeably.

History of the 80-20 Rule

The 80-20 rule was first discussed by economist Vilfredo Pareto to describe Italian wealth distribution in the early 1900’s, showing that 80% of the wealth in Italy was controlled by 20% of the population.

In 1940, Dr. Joseph Juran applied the 80-20 rule to quality control.  He postulated that 80% of product issues were caused by 20% of the production problems. Researchers in many fields have applied the 80-20 rule to explain phenomena in business, economics, and other areas of human behavior.

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At InvestingAnswers, all of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about 80-20 Rule.
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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

If you have a question about 80-20 Rule, then please ask Rachel.

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