Question

Which of the following best explains the 80/20 rule?

a) 80% of a firm's expenses are devoted to issues that cause 20% of its operational problems.
b) 80% of a firm's sales are obtained from 20% of its customers.
c) Only 20% of a firm's employees constructively contribute to a firm's sales process.
d) All of the above.

Answer 1

The best explanation of the 80/20 rule is option (b), which suggests that 80% of a firm's sales come from 20% of its customers. This principle, also known as the Pareto Principle, is a common concept in business that highlights the importance of focusing on key contributors to success.

Step-by-step explanation:

The 80/20 rule, also known as the Pareto Principle, typically states that 80% of effects come from 20% of causes. In business, the principle is often observed in different contexts. For instance, option (b), which states that 80% of a firm's sales are obtained from 20% of its customers, is a common application of the 80/20 rule. This suggests that a small subset of clients contributes significantly to a company's revenue, and therefore, these customers should be the focus of intensive marketing and customer service efforts to maintain and grow the business.

While other options provided may have instances where they also align with the 80/20 concept, option (b) is the most direct and well-known interpretation relating to a firm's sales and customer base. It reflects the efficiency gained by businesses when they prioritize resources on their most important areas, akin to a firm enhancing its core competency.