What is the 80/20 Principle?
The 80/20 principle (also called the Pareto principle) states that roughly 80% of effects come from 20% of causes. In business terms: 80% of revenue often comes from 20% of customers, 80% of complaints from 20% of products, or 80% of productivity from 20% of employees. Consultants use this principle to prioritize high-impact analysis and recommendations, making it essential for case interviews and client work.
| Also known as | Pareto principle, Pareto rule, law of the vital few |
| Named after | Vilfredo Pareto, Italian economist (1896) |
| Core insight | Distributions are skewed - a few causes drive most effects |
| Used by | All major consulting firms, business strategists, quality management |
| Precision | Rule of thumb - actual ratios vary (70/30, 90/10, etc.) |
| Case interview usage | Prioritization, focusing analysis, recommendation ranking |
Definition
The 80/20 principle reflects a fundamental pattern found across business, economics, and nature: outcomes are often distributed unevenly. Instead of all factors contributing equally, a small percentage typically accounts for the majority of the result.
Italian economist Vilfredo Pareto first documented this in 1896 when he noticed that 80% of Italy's land was owned by 20% of the population. The same pattern appeared in his garden - 20% of pea pods contained 80% of the peas. Since then, the pattern has been observed repeatedly across domains.
The exact ratio isn't always 80/20 - it might be 70/30, 90/10, or 95/5. The key insight is that distributions are skewed, and identifying the "vital few" factors enables focused, high-impact action.
80/20 Examples in Business
| Domain | 80/20 Pattern |
|---|---|
| Revenue | 80% of revenue from 20% of customers/products |
| Costs | 80% of costs from 20% of cost categories |
| Quality | 80% of defects from 20% of root causes |
| Sales | 80% of sales from 20% of salespeople |
| Customer service | 80% of complaints from 20% of issues |
| Software | 80% of usage from 20% of features |
80/20 Thinking in Consulting
The 80/20 principle is fundamental to how consultants work. With limited time and client budgets, analyzing everything equally is wasteful. 80/20 thinking enables focus on what matters.
Prioritizing Analysis
Instead of analyzing all 50 product lines equally, identify the 10 that drive 80% of revenue and focus there. The insight from those 10 will likely drive most of the recommendation.
Root Cause Analysis
When diagnosing problems, look for the vital few causes. A company might have 100 possible reasons for cost overruns, but fixing the top 5 issues might solve 80% of the problem.
Recommendation Focus
Recommend the 2-3 actions that will drive 80% of the benefit. Clients can't execute 50 recommendations - give them the vital few that matter most.
Data Gathering
Don't try to gather perfect data on everything. Get 80% accuracy on the factors that matter most. The time spent perfecting minor data points has low ROI.
80/20 in Case Interviews
Interviewers expect candidates to demonstrate 80/20 thinking. This shows you can prioritize like a consultant rather than getting lost in comprehensive but unfocused analysis.
| Without 80/20 | With 80/20 Thinking |
|---|---|
| "Let me analyze all 5 customer segments equally." | "Enterprise customers are 25% of volume but 70% of revenue. Let me focus there first." |
| "Here are 10 recommendations for improvement." | "These 2 recommendations will capture 80% of the opportunity. Here's why they should be prioritized." |
| "I'd need more data before forming a view." | "Based on this data, 80% of the issue appears to be X. Let me verify with one more data point." |
Key tip: After structuring your issue tree, explicitly prioritize: "Given [context from the case], I believe the 80/20 answer lies in [branch X]. I'd like to start there." This demonstrates consultant-level thinking.
Pareto Analysis and Charts
A Pareto chart is a visualization tool that displays factors in descending order of impact, with a cumulative line showing their combined effect. It makes the 80/20 distribution immediately visible.
How to Create a Pareto Chart
- List all factors and their impact (e.g., defect types and frequency)
- Sort from highest to lowest impact
- Create a bar chart with bars in descending order
- Add a cumulative percentage line
- Identify where the line crosses 80% - those are your "vital few"
In case interviews, you probably won't draw a formal Pareto chart. But mentally sorting factors by impact and identifying the vital few is the same principle applied verbally.
Related Concepts
- Hypothesis-Driven - Using 80/20 to prioritize which hypotheses to test first
- Issue Tree - Applying 80/20 to prioritize branches for investigation
- Profitability Case - Where 80/20 thinking often identifies key cost/revenue drivers
Frequently Asked Questions
What is the 80/20 principle?
The 80/20 principle (Pareto principle) states that roughly 80% of effects come from 20% of causes. In business: 80% of revenue from 20% of customers, 80% of problems from 20% of root causes, etc. It's a rule of thumb for prioritizing where to focus effort.
Is the 80/20 ratio always exact?
No, the actual ratio varies - it might be 70/30, 90/10, or 95/5. The 80/20 is a rule of thumb. The key insight is that distributions are usually skewed, with a small number of factors driving most of the outcome.
How do I apply 80/20 in a case interview?
After structuring your analysis, explicitly prioritize: "Given [context], the 80/20 likely lies in [area X]." Look at data critically to identify the vital few drivers. Focus recommendations on high-impact actions. Practice this with case practice.
Does 80/20 mean ignoring the other 80%?
Not always ignoring, but deprioritizing. Focus first on the vital 20% that drives 80% of impact. If time permits, address the remaining items. In time-constrained situations (like case interviews or tight engagements), focus almost exclusively on the vital few.
Practice 80/20 Prioritization
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Start PracticingLast updated: January 15, 2026