Pareto principle
The observation that a small share of causes often accounts for a large share of results, such as 20% of customers bringing 80% of revenue. A rough description of lopsided distributions, not a law.
In plain English
The real split varies: 60/20, 80/20 or 90/10 all happen, and the two numbers don't have to add up to 100. If everyone were the same apart from luck, the top 20% would bring only a little more than 20%; a true 80/20 split means the units really differ a lot. In a perfectly Pareto-shaped world the pattern also repeats inside the top group, which is why cutting 'the unimportant 80%' never runs out of things to cut.
Uncle Gary explains
Kevin's boss dropped the 80% of customers who brought 20% of revenue. The 200 who were left split 80/20 again. In a perfect 80/20 world, four rounds would leave 1.6 customers and 41% of the revenue.
Why it matters for your money
Returns are lopsided too: a few stocks and days do much of the work. The trouble is that you only find out which ones afterwards.
Where we tested it
Related terms
All glossary terms. Educational content, not financial advice.