In Short
The 80/20 rule (the Pareto principle) is the observation that a small share of customers often brings in most of the revenue. In the example here, 4 of 12 customers (33%) bring in 82% of $543,000 in sales, and the largest alone is 34%. Many lenders and buyers look closely when one customer passes 10–20% of revenue, a rule of thumb rather than a fixed limit.
How to Use the 80/20 Rule (Pareto) Calculator
- Pick whether you're ranking customers or products and services.
- Type each one with a year of revenue (and profit, if you know it), or paste two or three columns straight from Excel or Google Sheets.
- Read the Pareto chart, the 80/20 line, the ABC classes and the concentration check. Switch Rank By to Profit to see which ones actually make money.
- Move the Class A cutoff or the concentration flag to match how you look at your business.
- Lists are typed or pasted; Say It All adds one row at a time: “Add a customer with 45 thousand in revenue and 12 thousand in profit, and set the cutoff to 80 percent.”
The Formula
Sort the list from largest to smallest, divide each one by the total, and keep a running total of those shares. Class A is the group it takes to reach the cutoff (80% by default), class B runs to 95%, and class C is the rest.
- Share = one customer's revenue ÷ total revenue
- Running share = sum of shares from the largest down to this one
- Class A: running share before this one is under 80% · Class B: under 95% · Class C: the rest
- Concentration = largest customer's share; top 5's share = sum of the five largest shares
Worked Examples
| Scenario | Inputs | Result |
|---|---|---|
| Agency with 12 customers (the example data) | $543,000 of revenue; largest customer $182,000 | Top 4 (33%) bring in 82% · class A 4, B 4, C 4 · largest customer 34%, top 5 together 87%: three customers are over a 15% flag |
| Same agency, ranked by profit | $166,600 of profit; one customer loses $1,500 | Top 4 bring in 83% of profit; the running total peaks at 101% before the money-losing customer pulls it back to 100% |
| Shop with 9 product lines | $250,000 of sales: $120,000, $60,000, $30,000, $15,000, $10,000, $5,000, $5,000, $3,000, $2,000 | Top 3 (33%) bring in 84% · class A 3, B 3, C 3 · the best seller alone is 48% of sales |
| Even spread | 10 customers at $50,000 each ($500,000) | 8 of 10 (80%) bring in 80%: no 80/20 pattern and no concentration risk, each customer is 10% |
Illustrative examples, not projections. Figures use the tax year shown and the assumptions above.
What Is the 80/20 Rule in Business?
It's a pattern, not a law: in many businesses roughly 20% of customers or products bring in roughly 80% of revenue. The name comes from the Pareto principle. Real splits vary, from 70/30 to 90/10, and some businesses don't show the pattern at all.
The point of the analysis is to see your own split. The SBA suggests breaking revenue into segments to understand where it comes from [1]; ranking by customer or product is one of the most useful cuts.
What Are ABC Classes?
ABC analysis sorts the list into three groups by their running share of the total. Class A is the small group that brings in the first 80%: the relationships to protect and grow. Class B brings in the next 15%. Class C is the long tail that brings in the last 5% or so.
Class C isn't automatically bad. Small customers can be profitable, growing or cheap to serve. Ranking by profit as well as revenue shows which ones pay for the time they take.
What Is Customer Concentration Risk?
It's how much of your revenue depends on a few customers. If one customer is 30% of sales, losing it would cut revenue by almost a third overnight. As a rule of thumb, many lenders and buyers look closely when one customer passes about 10–20% of revenue, and it can lower what a buyer will pay for the business.
Watching the largest customer's share and the top 5's share over time, from your own records [1], shows whether the business is becoming more or less dependent on a few accounts.
Frequently Asked Questions
How do I calculate the 80/20 rule for my customers?
List each customer's revenue for a year, sort from largest to smallest, and add up their shares of the total as you go down. Count how many customers it takes to reach 80%. In the example, 4 of 12 customers reach 82% of $543,000.
Is the 80/20 rule always true?
No. It's an observation (the Pareto principle), not a law. Some businesses are closer to 90/10, others to 60/40. The calculator shows your real split instead of assuming 80/20.
What percentage of revenue from one customer is too much?
There's no official limit. As a rule of thumb, many lenders and buyers look closely when one customer is more than about 10–20% of revenue. The calculator flags any customer over 15% by default, and you can change the flag.
Can I paste my customer list from Excel?
Yes. Copy two columns (name and revenue) or three (name, revenue, profit) and paste them into Paste From a Spreadsheet. Tab-separated and comma-separated lines both work, and header rows are skipped. Up to 50 rows fit.
Should I rank customers by revenue or profit?
Both tell you something. Revenue shows who drives sales; profit shows who actually makes money after their costs. If a big customer has thin margins, it can rank high on revenue and low on profit.
Can I download a Pareto analysis template?
Yes. The free Pareto Analysis Workbook takes up to 100 pasted rows and sorts them with formulas, adding each row's share, the running share, its ABC class and the concentration check.
Sources
- Manage your finances — U.S. Small Business Administration
Official sources only: the IRS, SSA, BLS and other government agencies. Read how Zentavos researches.