Definition: Pareto Principle

What is the Pareto Principle? Definition and meaning

The Pareto principle is named after the economist Vilfredo Pareto and is also known as the “80-20 rule”. It states that 80% of the result can already be achieved with just 20% of the effort. It follows that the remaining 20% requires the most effort, namely the missing 80%.

Application areas of the Pareto Principle

In a company, the Pareto principle should be applied where the greatest benefit can be achieved. As a rule, 80% of revenue comes from 20% of customers. Companies should therefore identify these customers and nurture the relationship in order to earn as much as possible with as little effort as possible. This works, for example, with the ABC analysis.

Equally, the Pareto principle can be applied to products. The 20% of highest-revenue products should be filtered out in order to achieve 80% of total revenue.

Frequently asked questions

What does the Pareto principle state?

The Pareto principle, known as the “80-20 rule”, states that 80% of the result is already achieved with 20% of the effort. The remaining 20% of the result, by contrast, requires the most effort.

Where can the Pareto principle be applied in a company?

Within a company, the Pareto principle should be used where it delivers the greatest benefit. Typically 80% of revenue comes from 20% of customers, and the highest-revenue products can be identified in the same way. Anyone who focuses on the most effective tasks benefits from clear task management.

Where does the name Pareto principle come from?

The principle is named after the economist Vilfredo Pareto. Because roughly 80% of the result can be achieved with 20% of the effort, it is also known as the “80-20 rule”.