Pareto Principle Examples in Real Life

The Pareto principle says a small number of inputs produce most of the output. It's usually stated as 80/20, that 80% of results come from 20% of causes, but the ratio isn't fixed.

It's a power law distribution, which means the concentration can be much more extreme than 80/20 once you look at real data.

Here are three examples from running a business that actually illustrate how it works.

Client revenue. At any given time, 2-3 clients out of 8-10 account for most of the revenue in my agency. This isn't unusual. It's the default distribution for professional service firms. The question isn't whether it's true. The question is whether you've positioned your business to attract more of the high-value clients instead of spreading yourself thin trying to serve everyone.

Time allocation. Most agency owners spend the majority of their week on $10-$100/hour tasks, such as delivery, admin, Slack, invoicing. While certain aspects of delivery are much more valuable than $100 per hour, that is quite rare, and you are usually best off developing a process that more junior people can follow to create $100/hour+ work rather than doing it yourself.

If you are too caught up in delivery or administration, the $1,000/hour tasks, like positioning, building systems, and closing high-value deals, get squeezed into whatever time is left.

This is sometimes called the leverage problem. The fastest way to find more $1,000/hour work is often to get someone else doing your $10/hour work.

Marketing channels. One channel usually drives the majority of pipeline. For my agency, LinkedIn content ands ads generates more inbound leads than everything else combined. The instinct is to diversify into five channels for "safety." The Pareto move is to double down on the one that's working and only expand once you've maxed it out.

The common mistake with the Pareto principle is using it to justify cutting, e.g., firing the bottom clients, dropping the weaker channels.

The real insight is structural: the distribution tells you something about how your business is set up, not just which line items to delete.