Contents
Mental Model
Pareto Principle (or 80/20 Principle)
Summary
The 80/20 principle is a type of power law which states that roughly 20% of a set of causes result in 80% of the effects.
The numbers don't have to be exactly 80/20 though, and they don't have to add up to 100%: both '25/95' and '5/70' are also valid.
The key idea is that in most cases cause and effect are not linear: a small subset of causes usual generate most of the effects.
More...
Examples
- 20% of customers account for 80% of revenue
- 5% of customers account for 80% of support calls
- 15% of college courses require 60% of the effort
- 20% of the effort at a job generates 90% of the visibility and promotions
- 10% of drivers cause 50% of all accidents
*these numbers are made up but I'm willing to bet each one is roughly right
Why It Is Useful
In any given scenario, if you can figure out the primary drivers for an effect you are seeing then you can better optimize the results.
Case 1: If you know that 20% of your customers are generating 80% of your revenue, you can find and focus on those 20% to provide better (or more) services. Conversely, you may be able to stop spending as much time on the other 80%.
Case 2: Let's say 5% of customers generate 80% of support calls. With
Or if it turns out they are the type of customer you would rather not have then you can just 'fire' them and focus on the other 95% of customers that aren't nearly as much work. Many business have found by that 'firing' the 5% of customers that cause the most problems they lose little to no revenue and end up better off in the long run.
Case 3: In the typical job there
Case 4: In school the same can be said of coursework. Most courses require an average amount of effort ... and then there is the occasional course that requires more work than all the other courses combined for that semester (or even year).
How It Fits Into The Latticework
Charlie hints at the 80/20 principle when he says that only a handful of Mental Models do the heavy lifting:
But, fortunately, it isn’t that tough—because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.
It's a sort of 'meta' Mental Model in that you can use it to prioritize the order in which you learn or use the other Models.
Next Step
Use the 80/20 principle to find the activities with the biggest impact and use that knowledge to focus your effort where it counts the most.
Further Reading
- Wikipedia: Pareto Principle
- Book: The 80/20 Principle by Richard Koch
Please share your thoughts on this Mental Model or the post itself in the comments below!
Adam says
October 5, 2017 at 12:05 pmAndrew – love the format of this summary! It’s perfect – what it is, what it looks like (some examples), why its useful, how it fits in to the broader context and next steps. This is concise and very practical. Where do I find the other summaries you’ve created in the series?