80/20 in Practice – Starter for 10

Have you heard of the 80/20 rule – Pareto’s Principle?

Essentially, 80% of the benefits/consequences/results come from 20% of the input/causes/effort.

But what does this mean in practice?

In fitness, 80% of the benefits come from the last 20% of the workout

In management, 80% of the results can come from 20% of your leadership time

In sales, 80% of your revenue can come from 20% of your customers

Inversely:

80% of your teams time could be taken up by 20% of your clients

80% of your week could be taken up 20% of your staff

or 80% of returns come from 20% of customers

Before you start cutting 80% away, I included the fitness example to show that sometimes the 80% of work/effort is required to get the full benefits of the 20%. If all you did was the 20% sprints at maximum effort you’d pull up injured and miss your goal deadline, maybe indefinitely.

In business, 80% of your sales will likely come from 20% of your team, but that does not mean you can cut away the other 80%. A better plan would be to find out the 20% of tasks that generate the 80% of sales, so your sales team can spend more time on these with the remaining tasks falling to the other 80% of staff.

What can you cut away?

If 80% of your sales come from 20% of your customers (revenue makers)

AND the 20% of your customers that take 80% of your time (time drainers) are not in the top 20% revenue makers

AND your revenue makers are varied (in sector, size etc so you do not increase business risk by focussing on these)

AND your business can either survive on the revenue (and reduced costs) of focussing on the revenue makers and not the time drainers OR there is room for growth to get more revenue makers from the time saved on time drainers

Then you can consider scaling back your customers, taking into account other risks such as cashflow, reputation, staff, external etc

Hmmm, not 100% sure I’ve made that clear but I hope I have at least given you something to think about in the operations of your business, given you a starter for 10 on the principle and shown that there are lots of things to consider when it comes to “cutting to improve”.

Have you done any 80/20 analysis on your business? Let us know in the comments.

Bill Smith – The Fresh Prince of Financial Flair is here to talk all about the money side of business

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: