80/20 Rule: Pareto Principle in Product Management

80/20 Rule: Pareto Principle in Product Management

We’re 100% sure that 80% of you will benefit after reading only 20% of this article.

How is that possible, you say?

It’s called Pareto Principle. In this article, we’ll introduce you to this scientific phenomenon and explain how Product Managers can use it to make smarter prioritization decisions.

What is the Pareto principle?

The Pareto principle states that 80% of consequences come from 20% of causes.

The 20% is known as the “vital few” – because of this, you can also find the rule described as the “law of the vital few,” the principle of factor sparsity, or simply, the 80/20 rule.

Fun fact: Mr. Pareto had nothing to do with formulating this concept. It was Joseph M. Juran who in 1941 developed it after he’d come accross the works of economist Vilfredo Pareto. In his first work, Pareto showed that ~80% of the land in Italy was owned by 20% of the population.

Juran then pointed out that what Pareto observed applied to variety of situations – from economics to computer science.

If you’re a history nerd, here’s a video with more information about the Pareto Priciple’s origin:

Juran’s Pareto Principle

Time to return to project management, though. Let’s break down how you can use it in product management.

Why use the 80/20 rule in product management?

In product management, the 80/20 rule translates to 80% of your outcomes coming from 20% of your features or efforts. Using this principle helps PMs focus limited time and resources on the high-impact areas that will provide the most value.

Let’s say you’re working on an e-commerce site. After analyzing your sales data, you find that 20% of your total product catalog accounts for 80% of your revenue. 

Recognizing this imbalance, you can shift promotional efforts to focus on expanding those high-performing categories, instead of spending equally across all categories. This allows you to capture more value from existing customers.

As another example, let’s imagine you created a hyper-local delivery app for restaurants. After launching, you analyze your usage data and see that 80% of active user sessions come from 20% of features. They are:

  • Orders history
  • Favorite restaurants
  • Quick re-ordering 

This knowledge lets you prioritize the improvement of those features and devote more development resources to them. 

Also, knowing which features drive the most engagement, you may spot low-performers more easily and decide to deprioritize them or remove them entirely.

The Pareto Principle helps you quickly surface vital areas in a way few other methods would. The key here is the consistent review of metrics that identify the “vital few” for your product.

And that’s when things get tricky…

The flipside of the Pareto rule

Even though the 80/20 division should remain constant in the Pareto Principle, the things behind those numbers constantly evolve.

Your customers change. Your competitive landscape. Your product change, too.

Relying on the once-set Pareto distribution, you might neglect important changes in your industry and miss potential growth opportunities.

Coming back to the delivery app from before. Say you noticed an uptake in users from office parks in your city. You see them ordering from different restaurants throughout the week. They spend time using the search engine, trying to find their perfect lunch for the day.

Using the old Pareto division, you’ll ignore this fact and keep focusing on features that customers rarely use (Order history, favorite restaurants, quick reordering). At the same time, your competitor notices the same thing and releases a recommendation feature to capture the needs of this new audience.

To avoid such obvious (yet so often overlooked) mistakes, use other prioritization techniques to fill any gaps the 80/20 rule leaves.

Frameworks like MoSCoW or ICE score can quickly clarify where to allocate resources to maximize your product’s potential.

Using the ICE (Impact, Confidence, Ease) score, for example, you can quickly estimate the significance of the feature and see where to put it in the product’s roadmap, without straining your resources too much.

Remember, all prioritization techniques and principles like Pareto are your tools. Use them however you see the most efficient for your business.

The PM’s hot take

Ah, the Pareto principle. You slap a surname on any half-baked idea and it’ll spread like wildfire. Jokes aside, the 80/20 rule can be a handy technique if you need to make decisions fast. Keep in mind that this is a rule of thumb and not exact science. If you want more fleshed-out concepts, be sure to head to our countdown of the top prioritization techniques.

Conclusion

The Pareto Principle is an incredible phenomenon that any Product Manager can apply in their product strategy. But, just like with any other tool, you should be mindful of its limitations. Don’t settle on the same 20% of features to drive your product growth for the next 10 years. Explore different opportunities and let your Pareto distribution grow alongside your product. 

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