Definition
The Pareto principle is named after the economist Vilfredo Pareto and is also known as the “80-20 rule”. It states that 80% of results can be achieved with just 20% of the effort. It follows from this 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 generate high returns 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.