The 80/20 Rule, also known as the Pareto Principle, states that in most situations approximately 80% of effects come from 20% of the causes. The 80/20 Rule is commonly used (and also ignored at considerable cost) in many aspects of organizational and business management. Working with this principle in business is as important as working with the principle of aerodynamics when designing aircraft.
The principle was developed by economist Vilfredo Pareto in 1896 when he discovered that 80% of the land in Italy was owned by 20% of the population. Since then the principle has been found evident in many areas of business and life. Using this rule you have easy access to dramatic improvements in profitability by focusing on what brings the best results and either eliminating, delegating, automating or retraining wherever appropriate.
How do you use this 80/20 rule powerfully in your business to help you maximize performance and profits and save time?
80% of a company’s sales come from 20% of its products.
Find the products or services that generate the most income (the 20%) and drop the rest that only provide small benefits.
80% of a company’s profits come from 20% of its customers.
Find the customers that generate the most profits (the 20%) and nurture these VIPs. Focus on upselling and improving service to these clients.
80% of a company’s sales are made by 20% of its sales staff.
Reward these high performing employees well so they know they are appreciated. People enjoy verbal appreciation and job flexibility (e.g. an afternoon off to watch their son play footy) as well as the obvious monetary rewards.
80% of a company’s profits come from 20% of the time its staff spend.
Provide fresh air breaks or a meditation space knowing this will help staff be more productive for longer. Encourage your staff to get up every hour and take five minutes to stretch or meet at the photo copier for a chat. You know they do it anyway, so why not make it your suggestion.
80% of your time produces 20% of your results.*
Focus on what gains you the best results and delegate or drop the rest. It is easy to be active and busy; however it can be difficult to be productive. Activity does not equal accomplishment. Do what you enjoy and you will be more productive. That is why I have a house cleaner and a personal assistant!
One of my clients, who is a stockbroker, determined which 20% of his clients generate 80% of his income. He then allocated the lower income producing 80% of his clients to his assistant to service. This freed up his time and energy immeasurably while simultaneously improving his enjoyment of work and his life. His top 20% income producing clients also got better service and more attention. A win/win for everybody.
~Business Game Changer Special Promotion~
* Living Life the 80/20 Way by Richard Koch
