Pareto Principle

80 20 rule

The Pareto [pah-re-tawprinciple states that, for many events, roughly 80% of the effects come from 20% of the causes. Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied. He even found that 20% of the pea pods in his garden contained 80% of the peas.

It is a common rule of thumb in business; e.g., ‘80% of your sales come from 20% of your clients.’ The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist. Pareto developed both concepts in the context of the distribution of income and wealth among the population.

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