The 80/20 rule

Also known as the Pareto Principle (if my severely hungover memory of 1st-year statistics at Stellenbosch University serves me right) the "rule" suggests that roughly 80% of consequences come from 20% of causes.

Many 'experts' recite the 80/20 rule as if 'it's obvious', something that must at all times be accepted as 'a given'.

We've all heard the most senior manager in the room proclaim confidently that "80% of sales come from 20% of clients."

But in reality the ratio of 80/20 is really just shorthand for the idea that in a system, there are certain leverage points that do deliver a better return from the amount of input applied. but that particular ratio is certainly not always so neatly skewed.

This matters because the 'rule' is often used to justify important decisions. And it's a rule that often doesn't get subjected to further scrutiny.

Awkwardly - in terms of the old "80% of sales come from 20% of clients" - this old adage has been proven to be a myth.

In research done by Australia's Ehrenberg-Bass Institute the heaviest 20% of a brand’s buyers usually contribute around half (not 80%) of sales (often in the 50–70% range, depending on category and period).

The research shows that the majority of sales that a brand enjoys actually come from light or occasional buyers of the brand, rather than from the loyal advocates of a product.

With a more realistic appreciation for reality, marketing's focus should therefore be on customer acquisition rather than on loyalty for a brand to grow.

But with the inaccurate typical Pareto Principle being thrown around as if it's the gospel truth, the wrong growth strategy persists.

So whenever the ol' 80/20 rule is quoted, it's useful then to consider it together with Sturgeon's law (which states that "ninety percent of everything is crap")

Beware of business adages - they could just be leading you to make important decisions based on flawed assumptions.