Pareto or 80-20 rule

The Pareto or 80-20 rule is a rule of thumb that things such as "about 80% of sales comes from 20% of your customers", "about 80% of complaints come from 20% of the people", "about 8o% of sales come from 20% of the products", and "80% of your effort should be directed to your top 20% of priorities."

The Pareto rule is related to a statistical distribution of the same name.

According to Wikipedia, quality-management guru Joseph Juran (who I heard speak in Toronto years ago) suggested that this rule be named after Italian economist Vifredo Pareto (1848-1923).

One good example of the Pareto rule is the distribution of economic activity, measured by Gross Domestic Product (GDP) in the world. The top 23 countries account for 80% of total world GDP (see file/ graph and map).

The take home message of the 80-20 rule is that one should focus on those customers, products, or activities that account for the majority of profits, and not to get distracted by the minor ones.

world_gdp_2011.pdf
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