Law of the Vital Few

What it is

The law of the vital few is an observation, not a law. In many settings a small share of the causes accounts for a large share of the effect, and the 80/20 version puts the figures at about four fifths and about one fifth. It is also called the Pareto principle and the principle of factor sparsity. The pattern is a shape, close to what a power law distribution describes, and the 80 and the 20 are a convention.

The name comes from Vilfredo Pareto, an economist born in Paris in 1848 who held the chair of economics at the University of Lausanne from 1893. His income law, as the Library of Economics and Liberty summarises it, related income levels to the number of people earning more than each level. He drew it from British income data and checked it against Prussia, Saxony, Paris and some Italian cities. That summary does not mention an 80/20 split.

Joseph Juran generalised the pattern. The Juran Institute says he created the Pareto chart in 1937 and described the pattern as the vital few and the trivial many. In a 1974 paper, "The Non-Pareto Principle; Mea Culpa", Juran wrote that he gave the principle Pareto's name as shorthand, that the Pareto principle as a universal was not original with Pareto, and that Pareto's work had been in the economic sphere and his models were not intended to be applied to other fields. A footnote records that he later changed his phrase for the larger group to the useful many. The paper does not state the 80 or the 20.

So the figure of 80 per cent has no source in either man's own account that ties it to customers, sales or any particular domain. Wherever it appears in marketing, it arrived by repetition, and the only way to know whether it applies to a given case is to measure that case.

In effect

In research on customers

Three studies have measured the share of sales supplied by the top fifth of buyers, and none of them averages 80 per cent. Baek Jung Kim, Vishal Singh and Russell Winer used Nielsen household panel data covering six years and more than 100,000 households, and reported a mean brand-level ratio of 0.73 for packaged goods. They concluded that the principle generally holds. Byron Sharp's How Brands Grow prints tables averaging 50, 51, 55 and 49 per cent, and he writes that the annual share is "usually not far over 50% and rarely anything like the proverbial 80%". Daniel McCarthy and Russell Winer analysed 339 listed companies outside packaged goods and found 0.67 overall, 0.68 for non-subscription businesses and 0.59 for subscription businesses. The Sixty Twenty Rule is the specific correction for brand buying.

In management advice

Cal Newport's Deep Work states the idea with care and then uses it carelessly. It calls the law a heuristic and a reminder that contributions to an outcome are not evenly distributed, then asks the reader to assume that the law holds for the important goals in their life and derives the prescription that only the top two or three activities matter. Its three illustrations, client profitability, national wealth and software crashes, carry no source. The McKinsey Mind handles the same idea better. It concedes that the true ratio may be 75/25 in one case and 90/10 in another, and that the idea "prompts you to ask new questions" and does not lead directly to insight.

In commerce

A ratio can be read from either end. At a ratio of 0.50 the lightest four fifths of a brand's buyers supply half its sales, and at 0.73 they supply 27 per cent. The 2019 working paper by Sharp and colleagues reports that almost half of a brand's sales are likely to come from the lightest 80 per cent of buyers, and that about half of last year's heaviest buyers fall out of the top fifth the following year. Kim and colleagues found niche brands scoring higher and larger brands lower, so the figure depends on the brand as well as on the category. McCarthy and Winer report preliminary results that profit is far more concentrated than sales.

What it does not say

It does not say that 80 per cent is a constant. The ratio varies with the category, the size of the brand, the length of the period and the technical choices of whoever calculates it, and two sets of researchers using packaged-goods panel data reach figures more than twenty points apart. Neither abstract refers to the other.

It does not identify the vital few. The pattern says that concentration is common and says nothing about which customers, activities or defects make up the concentrated fifth, and in customer data the membership of that fifth keeps changing from one year to the next.

It does not license a prescription from an assumption. The move that fails is not stating the pattern but assuming it holds for a case nobody has measured and then treating the conclusion as established. This publication rates the concept as mixed for that reason: the observation is real and common, and the 80/20 split is a rule of thumb.

The profit result is preliminary, and the evidence behind the Sixty Twenty figures includes a working paper that does not appear to have been peer reviewed.

Who developed it

Vilfredo Pareto studied the distribution of income and is the namesake. Joseph Juran generalised the pattern to quality problems, coined the phrase the vital few and the trivial many, and in 1974 wrote that the principle as a universal was not original with Pareto. See Vilfredo Pareto and Joseph Juran.

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