The 80-20 rule, also known as the Pareto Principle, is a principle that states that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for any given event. This principle is used mostly in business and economics, but it can be applied to many other areas of life. Here are some examples of how the 80-20 rule can be applied:
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Product details: In inventory management, the rule suggests that 20% of your inventory accounts for 80% of your profit. By identifying and prioritizing the 20% of factors that produce the highest outcomes, you can increase your working capital and align your inventory with customer demand better.
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Positive and negative: In customer service, the rule suggests that 20% of a companys customers account for 80% of its sales. Similarly, 20% of a companys products account for 80% of its profit. On the other hand, 20% of a persons work consumes 80% of their time, and 20% of a companys products or services cause 80% of customer complaints.
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Ingredients or materials: The 80-20 rule can also be applied to ingredients or materials used in a product. For example, in manufacturing, 20% of the materials used may account for 80% of the cost of goods sold.
Its important to note that the 80-20 rule is not a hard-and-fast mathematical law, but rather a general observation. Its a principle that can be used to identify an entitys best assets and use them efficiently to create maximum value.
