• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Penpoin

Better knowledge. Sharper Insight.

  • Management
  • Economics
  • Finance
Management

Pareto rule

Updated on May 11, 2019 · By Ahmad Nasrudin

Pareto rule
You are here: Home / Management / Pareto rule

80/20 rule or Pareto rule is a principle stating that 20% of effort produces 80% of results. For example, 80% of the company’s revenue comes from its 20% product. 

Advertisement

Initially, Vilfredo Pareto developed it in describing income distribution and wealth among the population. He states 80% of national income comes from 20% of the population. 

But, now, many noneconomic fields use this principle, including marketing, management, human resources, and everyday life.

Little research proves or disproves the Pareto rule validity. Hence, the rule may not be numerically accurate for all things. However, this rule is essential since it requires us to prioritize small things that have a significant impact.

Managers can use this rule to identify and determine the most critical operating factors for a company’s success. That way, they can receive the most attention.

For example, management found 80% of the company’s sales came from 20% of its customers. Therefore, companies can focus on giving the best value proposition to 20% of these customers and, of course, without ignoring other customers. That way, the company can maintain overall sales.

In another case, management found 20% of the company’s employees contributed to 80% of output. By rewarding the most productive employees, the company can maintain productivity. Furthermore, the company is also trying to improve the productivity of other employees.

Advertisement

Economic Growth and Economic Development: Their Differences and Relationships

Economic growth has a close relationship with economic development. We need economic growth to support

Economic Growth: Factors, Importance, Impacts, How to Measure It

Economic growth refers to an increase in output in an economy over time. It can be short term or long term. In the short

Gini Coefficient: Meaning, Calculation Method, Data, Pros, and Cons

What's it: Gini coefficient is a statistic of economic inequality in a society. It tells you the distribution of income

Advertisement

Needs: Definition, Example, Type

What's it: Needs means requiring something because it is essential. For example, we need food, water, and shelter

Wants: Definition and Examples

What's it: Wants are hopes to have or fulfill something. If we want something, we expect to be able to buy it and

Venture Capital: How It Works, How It Makes Money, Investment Horizon

What's it: Venture capital is capital invested in a new company, startup, or young company, in return for

Private Equity Structure and Fee

Private equity is usually structured as a Limited Partnership (LP) or Limited Liability Company (LLC). Under a

Primary Sidebar

TOPIC

Accounting and Finance Business and Strategy Financial Statements Human Resources Investment Macroeconomics Marketing Microeconomics Operation

Advertisement

LATEST POST

  • Private Equity Structure and Fee
  • Hedge Funds Strategy: Macro, event-driven, relative value, and equity hedge strategies
  • Leveraged Buyout (LBO): How it Works, Funding Sources, Criteria for Target 
  • Private Equity: Examples, Strategies, Targets, Its Ways To Make Money
  • Economic Growth and Economic Development: Their Differences and Relationships
  • Where Do Comparative Advantages Come From?

MOST POPULAR

  • Political Environment: Meaning, Examples
  • The Role of Business in Society and the Economy
  • Business Size: Definition, Measurement, Classification
  • Government Intervention: Examples, Reasons, and Impacts
  • Span of Control: Importance, Types, Advantages, Disadvantages
  • Trade Restriction: Reasons, Types, and Impacts

Footer

SEARCH

POPULAR

  • Political Environment: Meaning, Examples
  • The Role of Business in Society and the Economy
  • Business Size: Definition, Measurement, Classification
  • Government Intervention: Examples, Reasons, and Impacts
  • Span of Control: Importance, Types, Advantages, Disadvantages

TOPIC

Accounting and Finance Business and Strategy Financial Statements Human Resources Investment Macroeconomics Marketing Microeconomics Operation

Copyright © 2023 · About Us  · Privacy Policy and Disclaimer  ·  Terms of Use  ·  Comment Policy  ·  Contact Us