The 80/20 Rule

In almost every strategy meeting, someone says that twenty percent of customers bring in eighty percent of the money. It sounds so wise that nobody checks. But you've got the data. So let's test it at Harbor Coffee.

• Twenty percent, eighty percent
• Nobody checks
• Let's test it

How concentrated are we?

We add up profit by city, and by product, and we sort each one from highest to lowest. Cumulative sum gives us the running share of profit. Then we find the share from the top three cities. Next, customers. We rank them by monthly spend, and take the top twenty percent. Run it. Three products make fifty seven percent of the profit, and five of the eight make eighty one percent. The top three cities bring in only a third, so the cities are quite balanced. And the top twenty percent of customers make forty six percent of the money. That's well short of eighty. The rule is real as a shape, but its numbers are not a law.

import pandas as pd

s = pd.read_csv("sales.csv")
by_city = s.groupby("city")["profit"].sum().sort_values(ascending=False)
by_prod = s.groupby("product")["profit"].sum().sort_values(ascending=False)

print((by_prod / by_prod.sum()).cumsum().round(2).to_string())
print()
print("Top 3 of 12 cities:", round(by_city.head(3).sum() / by_city.sum(), 2))

c = pd.read_csv("customers.csv").drop_duplicates("customer_id")
c["monthly"] = c["visits_per_month"] * c["avg_spend"]
top = c["monthly"].sort_values(ascending=False)
print("Top 20% of customers:", round(top.head(len(top) // 5).sum() / top.sum(), 2))

product
Latte         0.30
Flat White    0.44
Espresso      0.57
Sandwich      0.69
Mocha         0.81
Muffin        0.89
Tea           0.96
Cookie        1.00

Top 3 of 12 cities: 0.33
Top 20% of customers: 0.46

Why the shape matters

Knowing how concentrated you are changes your plan. If a few products make most of the profit, protect their supply first. If customers are balanced, then losing one isn't a disaster, and broad marketing can make sense. If one client is half your revenue, that's a serious risk. And always compare by profit, because a best seller can make little money.

Quick check

Your top ten percent of users create ninety percent of the posts. Your manager wants to ignore the others. What's the risk? Think about it. Those quiet users may be the audience that makes posting worthwhile. Concentration in one number doesn't tell you who really matters.

Two better measures

Instead of quoting a rule, you can show the whole picture. A Lorenz curve plots the running share of money, against the running share of customers, and the further it bends, the more concentrated you are. The Gini number sums up that curve, from zero for perfectly equal, to one for a single customer holding everything. Track it each quarter. A steady rise warns you that you're leaning on fewer and fewer people.

Summary