A formula that was developed by Vilfredo Pareto and applied to quality issues (80% of the effects come from 20% of the causes) by a man named Joseph Juran, the ’80/20′ rule has garnered a lot of attention in the world of business.
The idea behind it is to showcase how 80% of all success for a business is going to be attributed to 20% of its processes.
If those 20% are improved upon, the business is going to succeed.
Yet, many people tend to focus on the other 80% and divide their attention which leads to minimal gains across the board.
Let’s take a look at why many CEOs tend to forget this and the benefits it has to offer. While we are focusing on processes, it applies to most facets of business and life. In sales, it’s the biggest opportunity you have right now.
And, as fellow author Perry Marshall says:
“80/20 is true of almost anything you can measure in a business”:
- Sources of incoming phone calls
- Effectiveness of sales people
- Sales to customers
- Physical location of customers
- Popularity of products
- Types of product defects
- Problem employees
- Customer service problems
- Sources of conflict
- Shoplifters
- Activity patterns in a 24-hour day, or a week or month
- Performance of distributors, affiliates, and channel partners
- Sources of web traffic
- Advertising waste
- Advertising effectiveness
- Productivity of web pages
- Reasons customers buy
CEOs Wish To Focus On Everything
A person who wishes to demonstrate their ability as a professional and someone who works tirelessly will target everything. This is how they have been raised and they will assume it is the best way forward. Indeed, working hard is critical, but where the effort is being focused is essential to.
Many CEOs tend to spread themselves out too thin and that is when the business is negatively impacted.
The 80/20 rule pushes past such concerns by letting a person work hard on 20% of the most important processes a business has built in.
Real Life Example
Okay, so the principle is being assessed here, but what is a real life example of this being put into action?
Let’s take a look at some of the world’s biggest businesses. When you start to break down their client base, you will notice the majority of their sales are coming from the same people or companies.
So, in essence, 80% of their sales are coming from a select 20% in their client base.
Yet, they will continue to push forward and target new clients.
Why not optimize processes and continue to reduce expenses by focusing in on those loyal customers instead?
By bettering their experience, running surveys and tailoring products and services to them, those 20% will spend even more and lead to the business pushing forward. This is why many businesses sink themselves early on.
They simply are not focused enough on those who are loyal to the brand and company.
How To Double Or Even 10x Business Growth
Let’s move onto the heart of this topic.
Let’s assume one begins to understand the viability of this principle and what it brings to the table.
What should a business owner be aiming to do in order to double their growth in the coming year?
How will this principle be applied in order to garner success?
It all begins with a checklist.
You have to understand all aspects of the business and how the processes work. You can only make tweaks if you are aware of how the business is working and how the products and/or services are being delivered to the customer.
If this is not being focused on, the principle is not going to work as neatly.
Sit down and focus on putting together a meaningful checklist of what the principle entails and how it syncs with your business.
Start Breaking Things Down
Take a look at the complaints, sales, staff, and products. Where does the 20% rule apply?
Here are a few additional examples that can help in breaking things down:
* 80% of all complaints will come from 20% of the client base
* 80% of all growth will come from 20% of time put in by employees
* 80% of all sales are being made by 20% of the staff
Alright, so there are a few points one can look at immediately. Let’s pick one out of those three.
The principle that will be further analyzed here would be “80% of all sales are being made by 20% of the staff”. So, this has been determined now and your business seems to only be doing well because of a certain selection of staff members.
There are a few things you can do from this point:
1) You can increase the role those 20% have to play in the sales process
2) Have those 20% train the rest of the staff
3) Further, incentivize those who are succeeding already
4) Fire those who are not in the 20% and bring in those who do fit the system being developed
These are just some of the steps that can be taken because of the 80/20 rule. You can slowly start to see how everything becomes easier to optimize for the business.
The expenses start to go down and the business is able to concentrate on what works rather than trying to find balance.
This was just one example and there are so many different ways where this principle can be applied with great success.
Those who do will notice massive results in a short period of time. It simply works for those who want to make sure their business is on the up.
Common Mistake: To Spread Out
Let’s assume a business is earning $1 million every year. It seems to be doing well and they want to expand now.
Does the expansion mean they are going to hire more people and market even more? No, sometimes expansion can be expanding in the same market and simply cutting out the excess.
By removing unnecessary roles in the company, putting more money in marketing campaigns that work, and taking out poor products and/or services, the business is able to expand without spreading out.
Almost all businesses who do this start to report success.
A company that is making $1 million right now can end up making $10 million with such changes.
Yes, it is truly possible and has been done on a regular basis around the world.
This is a fantastic principle and one that all businesses owners around the world cannot ignore any longer. The case studies are out there for one and all to see. It works like a charm and those who are ignoring it are going to miss out big time and that is not a good position to be in.
Competitors are always improving their methods too, you should be looking to get out in front of this as soon as possible.
How can you improve your bottom line, by taking one action on this principle today?
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