President’s Corner, May 2014
Although I’d heard it before, a friend and colleague recently reminded me of an important rule for business. The 20-80 rule (also known as the Pareto principle) states that, for many events, roughly 80% of the effects come from 20% of the causes. Italian economist Vilfredo Pareto first developed the rule in 1906 when he observed that 80% of the land in Italy was owned by 20% of the population. Since then, businesses along with other industries, corporations, and individuals have applied this rule in various shapes and forms.
The essential idea is that only a few things are responsible for the vast amount of your productivity and results. Think what an amazing insight this can be for your business.
How the rule fits into business.
80% of the sales are generated by 20% of the customers
80% of the sales are generated by 20% of the sales staff
80% of the complaints come from 20% of the customers
80% of the work is done by 20% of the employees
80% of what one buys comes from 20% of the vendors
80% of the sales from advertising come from 20% of the customers
80% of the important decisions happen in 20% of the meetings
80% of the business’s profit comes from 20% of the customers
Here are 5 ideas to help your business increase revenues using the 80/20 rule:
1. Identify those vital few activities, brands, customers or actions (the 20%) that yield high profit and expand on them.
2. Discover which 20% of your customers are causing 80% of your headaches and take a hard look at firing them.
3. You can maximize your profitability by cutting products and services that drain your most precious resource… your time.
4. Look at your customer base and try to find similarities between your best customers. Then focus your efforts on attracting and selling to that type of customer.
5. Spend 20% of your time working IN the business and 80% of your time working ON the business.
If 20% of input (time, resources, and effort) accounts for 80% of output (results, rewards, revenue) then shouldn’t Pareto’s principle be implemented in your business strategy?
I’d like to thank my friend Dave Webb for pointing out this valuable information and I hope you see its value too.
See you next month.