Why not eliminate four-fifths of what you normally do because, in reality, it”™s preventing you from enjoying the results you want? Understanding the 80/20 Rule isn”™t difficult, but getting yourself and your organization to use it in order to enjoy lasting prosperity is.
If only 20 percent of decisions are important, four-fifths are an absolute waste of money and time. The key is for you to train yourself and your organization to single out the precious few choices and activities that are important and pay very close attention to them.
Which 20 percent of customers are bringing in 80 percent of your business? Why not increase marketing to get more customers just like them and find the money needed by eliminating what you”™re spending on the other 80 percent.
To do this, consider using 80/20 analysis, which examines the relationship between two sets of comparable data. For example, in a group of 100 coffee drinkers, you would ask all 100 how many cups they drank last week and arrange them in descending order.
Now add up the number of cups consumed by the first 20 on the list. The untrained mind would never ask what percentage of the total this figure represents but, by training yourself and staff to observe the 80/20 Rule, you will be startled by the findings.
Regardless of the product or service you offer you will find that 60 to 90 percent of what you offer was bought by about 15 to 30 percent of those surveyed. I know that really doesn”™t equate to 80/20, but is always valuable because it reflects an unbalanced relationship.
Our hypothetical coffee brewer would now train its people to focus all marketing on people just like the first 20 of the 100 surveyed. It is people just like them who will dramatically add to sales. Simultaneously, the brewer would pay no attention to the profile of the 80 on the list who consume comparatively little coffee.
Of course, you can”™t always obtain precise data for analysis in many situations. The key question is always: What 20 percent of activity is leading to 80 percent of the results we want? Never assume you know the answer. Take time to think carefully in order to discover the “valuable minority.”
Look at each of your company”™s products or services to determine profitability and rank them in descending order. One company found that 30 percent of the products accounted for 67 percent of profits. Doubling sales of those products increased sales by only 20 percent, but profits soared by 50 percent.
By dividing electronic instruments into 15 competitive segments, another company found that six segments produced just 26 percent of total sales, but 83 percent of profits. Recognizing this, they focused on selling more of those product segments, both to existing customers and to new ones.
The second most profitable group comprised 57 percent of total sales, but only 9 percent of total profits. Looked at another way, they found the most profitable one-fourth of their business was at least 16 times as profitable as the bottom three-fourths. What would this look like in your organization?
Every organization has a small percentage of customers responsible for most of their profits. By training your people to use the principles discussed, they will find out who they are, provide them with outrageously good service and make sure new products or services are aimed at satisfying their ever changing needs. Once this is done, prosperity is sure to follow.
Questions for discussion:
Ӣ What will you do to identify the 20 percent?
Ӣ Who or what is responsible for 80 percent of your profits?
Joe Murtagh is The DreamSpeaker, an international keynote speaker, meeting facilitator and business trainer. For questions or comments, contact Joe@TheDreamSpeaker.com, TheDreamSpeaker.com or call (800) 239-0058.
Comments 1