One of the mental models I keep referring back to almost daily in my life is the Pareto Principle, also known as the 80/20 rule. I use it to analyze business tasks, buying groceries, learning skills, or allocating free time.
As a student of Business & Economics, I was introduced to the Pareto Principle in college. It gets its name from Italian economist Vilfredo Pareto, who “stumbled” upon the concept when observing that about 20% of the peapods in his garden contained 80% of the peas.
And then he kept observing the same pattern everywhere else:
During research for a paper, he discovered that approximately 80% of the land in Italy was owned by a few powerful people – 20% of the population. He went on to study the land distribution in other countries and found a similar pattern.
To this day, the 80/20 rule is present on all walks of life:
- In languages, the most frequently used 20% of the words account for 80% of the word occurrences
- The richest 20% of people in the world have 80% of the world’s income
- In 2002, Microsoft reported that 80% of the errors and crashes in windows and office are caused by 20% of the bugs involved
- 20% of the customers are responsible for the 80% of the profit earned and 20% of the complaints received come from 80% of the customers
The 80/20 rule can be simplified to:
80% of the output or results will come from 20% of the input or action.
The little things are the ones that account for the majority of the results. The ratio – 80/20 – are simply common numbers for simplification purposes. In reality, it can mean 90/10, 95/5, or even 99/1.
What I love about this mental model is that it forces you to ask questions. Using it wisely, it’s a constant reminder of where your focus is and where you actually think it should be.
Using the 80/20 Rule for Life Growth
Here are a few Eureka moments I had in life because I asked the 80/20 rule question:
- 20% of my tasks were bringing me 80% of the results in a specific business goal, which led to making those tasks top priority
- I only liked 20% of the shows I watched, the others were being consumed for the sake of consumption. I quit all of those and tried to find more of the ones I liked
- 80% of the time spent on the phone was useless. I proceed to delete all social media and useless apps from it. Now, I rarely use it
- Didn’t need about 80% of the photos I had collected over the years. Kept the really great ones and deleted the rest. Pro tip: question yourself – “will I ever print this picture?” If no, delete. All of the sudden, half of my hard became empty
- I use the same clothes over and over again: I use 20% of my wardrobe 80% of the time. I donated most of it, which simplified the management system and have fewer options every morning
- This lesson came the hard way: on my first backpacking journey, I threw away 80% of what I had packed after a couple of days. Focus on the 20% that makes the difference when traveling
- I truly read 20% of the blogs and newsletter that I subscribed to. Proceed to delete the remaining 80% and switched to a “Just in Time” consumption of information
And these are only some of the changes I make in my lifestyle because of the 80/20 rule.
Let’s move into how you can apply the 80/20 rules to many different areas of your life and how they can transform your thinking and reasoning.
How to Apply the 80/20 Rule to Your Life
I’m going to break down this section into areas of your life where you can apply the 80/20 rule. Remember that the numbers – 80 and 20 – are just an indicator. The focus is to find little things that give you the biggest results.
In each area, I am going to give a few questions you can ask yourself. If it applies to your life, adapt and refocus your priorities so your energy goes into the right places.
Work & Business
Customer Lifetime Value (CLV) segmentation should follow the question:
“Do 20% of your customers drive 80% of your profits?”
Focus on those clients and ask for their feedback, offer customizations, test different price points and offerings. Go out of your way to deliver a VIP experience.
The 80/20 rule can also be applied in terms of acquisition:
“Do 80% of your new customers result from 20% of your offerings?”
In this blog, about 10% of my posts and ideas bring around 90% of the traffic. If I compute a graphic it’s almost a perfect power law distribution.
I tested different channels of acquisition for my newsletter and after a couple of weeks the trend was evident: a couple of channels were pulling all the weight in bringing new subscribers. I switched focus to those core channels and put more effort into them.
It also rings true when you have a product catalog: a couple of your offerings/products bring you the majority of your revenue. You can then focus on making those products more effective by optimizing landing pages or promoting them more, for example.
At a job, we all do tasks that we love and others that… well, we don’t. Ask yourself:
“Do 20% of my tasks give me 80% of the pleasure in my job?”
Identify the key tasks that you love doing and how you can get more of them.
Personally, I am not a big fan of presentations but I love looking at data, organizing data, structuring data, getting insights from data. I mean, how can anyone not like data? 😉 When I worked in a bank, I tried to always be the first volunteer in data-related projects, while asking for help or delegating (if possible) whenever I had a presentation.
Other examples of the 80/20 rule in business:
- 80% of problems originate with 20% of projects
- 20% of your team completed 80% of the work
- 80% of customers only use 20% of software features
- 20% of customers make 80% of the complaints
- 80% of promotions come from 20% of bosses
This is probably the area in my life where I most commonly use the 80/20 rule to ask the hard questions. The main one:
“Do 20% of my tasks bring me 80% of the results?”
My metric for results can be revenue, subscribers, number of posts or something else. But it forces me to refocus priorities, every time. The result is two-fold: to focus on doing Deep Work I reduce the time for the shallow tasks and try to optimize them at the same time (an example would be managing email, where I switched to a GTD Gmail Inbox).
What are your daily to-dos? Which 20% of your daily tasks create the most value and happiness? How can you spend more time on these? How can you cut away, reduce, or delegate the 80% tasks that do not give you much in return?
By focusing on activities that produce the most results and eliminating or outsourcing trivial activities, you can free more of your time while accomplishing more.
Other examples of the 80/20 rule in productivity:
- 80% of the value is achieved with the first 20% of the effort
- 20% of the emails are 80% of the important conversations
- 80% of your distractions come from 20% of sources
Hobbies & Fun
How well you allocate your free time goes a long way to foster your happiness and general mood. The first 80/20 rule question you can ask yourself is:
“Do 20% of the experiences provide 80% of my happiness?”
I like good food. So whenever I go out to eat at a nice place, it’s mostly about the food and less about the ambiance, music, etc. Eating out takes a lot of preparation: booking a table, transportation to and from the place, and be ready on time. While it’s nice to eat out once in a while, I can either:
- Cook stuff myself (which I also love)
- Order in and eat at home
- Couple eating out with another activity I like, such as going to the movies
Knowing your tastes, you can streamline a lot of other things you consume.
What books were so good you couldn’t put them down? Look for the trend and use it to skim or skip future books to save time.
And if you read a lot online, you can apply the 80/20 rule to RSS Feeds, blogs, newsletters and news:
“Do 20% of the sources I read provide 80% of the value?”
I had a “light-bulb” moment in this particular area a while back, which led to deleting 90% of all the newsletters, RSS Feeds, and blogs I read (I eliminated 99% of the news).
Other examples of the 80/20 rule in hobbies and fun:
- 20% of the websites you visit deliver 80% of the value
- 20% of your magazine subscriptions bring you 80% of the fun
- 80% of the pleasure comes from 20% of the TV shows you watch
When it comes to relationships, the people you hang out with affect your happiness the most:
“Do 20% of my friends provide 80% of support and enjoyment?”
Spend time with those who bring you joy and truly care about you. You can also shift the time spent on certain relationships and save your big chunks of time for those who matter most.
Sometimes, you have people you used to be great friends with in college, high school, or a previous job. As time passed, the relationship changed and maybe both of you have new great friends. And that’s ok.
Don’t chase “dead” friendships. Rather embrace that circumstances in life are always changing and catch up with them once in a while.
It will never be the same, but you can still have mutual respect and admiration for one another.
You can also apply the 80/20 rule in your dating life. Don’t chase people that don’t want to go out with you, or keep canceling time and time again. Don’t even worry about the ones that have reservations about going on a date.
Focus on the people that want to go with you right away and foster those relationships. Pick the 20% that want to go out with you and don’t spend too much time on the other 80% that aren’t willing to meet up right away.
We could break this category into exercise and nutrition. Each contributes to your overall happiness and you should look for the shortcuts that give you 80% of the results.
For physical activity:
“Do 20% of your workouts lead to 80% of your physical gains?”
Whether you want to burn fat, build muscle, or control cardio, you only need a couple of set exercises and the habit of exercising daily to lose weight. Add difficulty to that set of exercises each week and you will see results fast.
For nutrition, we can spin the negative:
“Do 20% of the foods consumed lead to 80% of weight gain?”
These can include fast food, chips, chocolate, dairy, processed food, alcoholic drinks, sodas, pasta etc. Keep a few of the ones you love (if you must know, my guilty pleasure are Mexican and Sushi 😉 ), and switch the rest to healthier alternatives. I only drink water, for example.
Other examples of the 80/20 rule in health:
- 20% of the food you eat damages 80% of your energy
- 80% of your muscle gains come from 20% of the effort
The formula for financial “success” is quite easy: money coming in – revenue, salary, residual income – must be higher than money going out – expenses. You can apply the 80/20 rule to both sides of the equation.
Let’s start with expenses:
“Do 20% of expenses account for 80% of spending?”
First, paying prior debts improves your finances dramatically. You want the compound effect to work for you, not against you.
If you rent, it’s always a big chunk of your income. Try to find ways to reduce the percentage of income spent on rent, either by moving to a cheaper apartment/room or location.
On a deeper level, break down your expenses per category and identify the biggest items on each one and compare to the pleasure that it brings you. I already gave you the example of eating out: eating in or ordering food is cheaper while not decreasing my pleasure. For you, it could be technology and gadgets, movies, games or going out.
For income, the question becomes:
“Do 20% of income sources account for 80% of the total income?”
If most of your income comes from a job, what are the key variables that your pay is linked to? How can you focus on those variables to increase productivity?
If you are a business owner, identify your top revenue sources. You will clearly see that most of your revenue is generated by a handful of products, services, or customers.
To maximize your wealth, increase your income while decreasing expenses. Invest the difference in diverse appreciating assets, such as savings account, stocks, bonds, real estate, and commodities.
Other examples of the 80/20 rule in wealth:
- 80% of your grocery bill comes from 20% of the items
- 80% of your income goes to 20% of things in your budget
- 20 percent of your investments will yield 80 percent of returns
Life in General
We could break it down into dozens of other categories. Instead, I am going to list a few more that I’ve found useful and used before:
- Goals: focus on 20% of the goals that will achieve 80% of the results; compare the resources needed – time, money, energy, etc. – to the potential benefits
- Habits & Routines: 20% of key power habits create 80% of value in your life; for me, these are meditation and exercising
- Decluttering: throw away 20% of the things that take 80% of the space
- Home Appliances: find which appliances cause the most frustration, stress, and break down the most. Either learn to use it better, buy a new one or find a substitute that is less damage-prone
- Daily tasks: if possible, outsource 20% of daily chores that bring you 80% of the stress. Sometimes a machine can be a solution: I really don’t like hanging clothes, so a drying machine could solve this
- Digital: 20% of your files use up 80% of the space; you use 20% of applications (in both computer and phone) 80% of the time; you use 20% of the gadgets 80% of the time, sell or give away the rest
- Email: clean up 20% of the emails that take 80% of the space (I discussed this in the GTD Gmail system)
- Traveling: most luggage is not necessary, 80% of what you carry is excess and 20% is essential
Using the 80/20 Rule Wisely
The 80/20 rule is a simple concept to grasp and a hard one to practice.
In business, you can achieve huge financial savings by rationalizing your product mix, employees, and tasks according to the 80/20 rule.
And in your personal life, you can better manage your finances, health, and space by decluttering your possessions.
Use this mental model to pursue new hobbies or career paths, be more effective/efficient at your job, or find ways to be less stressed.
You can even link the 80/20 rule with Parkinson’s Law to reduce the amount of time spent on anything.
By cutting the non-essential and the things that generate little value, you declutter your mind, space, and time.
And that ultimately leads to a happier life!