The 80:20 Rule- Your Formula For Success
The previous 'dirt-world' retail business I managed had a large
turnover, a very high profit, and less than 100 lines. Early in
2001, I was contracted to manage another business. This one
carries over 800 different lines, yet has a turnover of only
about a sixth of the other business, and a lower profit margin.
They both have a comparable amount of traffic and credibility in
the market, so how can it be that the results are so different?
The explanation starts with Vilfredo Pareto, an Italian
economist and political sociologist who lived from 1848 to 1923.
He devised the law of the 'trivial many and the critical few',
better known as Pareto's Law, or the 80:20 rule. This rule says
that, in many business activities, 80% of the potential value
can be achieved from just 20% of the effort, and that one can
spend the remaining 80% of effort for relatively little return.
Old Vilfredo might have lived a century ago, but he was spot on.
I've been in business a long time, and I can confirm the almost
universal truth of the 80:20 rule, in many forms.
- When Sales Manager of a Realty office, I had 19 sales staff
working to me. About 85% of the business was written by the four
top staff.
- In a Consumer Electrical business I owned, around 75% of the
turnover came from the the best-selling 20% of the stock.
- In an eco-tourism business I now manage, there are almost 40
Departments of stock. One department alone produces over 25% of
the profit; the next five departments produce the next quarter
of profit; the next seven another quarter, and the next
twenty-five or so together only produce the last quarter of
profit.
The 80:20 Rule applies in almost every sphere. It's uncanny. In
almost any field, 20% of the resources produce 80% of the
result. It's vital to understand that the reverse is also true-
things that take up 80% of your time and resources, will only
produce 20% of your results.
Stocks, products, services, insurance, litigation, people- the
80:20 Rule keeps coming up! Look for it and you'll find it.
The universality of this principle should be a powerful guide
for you in business. Find out how it applies to your enterprise,
and you have the power to set the vital priorities which will
mean the difference between failure, survival, and success. Take
the time now to look at your business. Look at where the results
are coming from, and concentrate on those areas. Look at some of
these areas...
- Have a product range? Have a look at how much of your profit
comes from each item. Put your effort into the 20% that give you
80% of your sales- your winners.
- Selling products or services? Most likely, 80% of your sales
come from 20% of your customers- the ones who make the big
purchases and are repeat-buyers. Cherish that 20%.
- Have a sales force? Have a look at how much of your profit
comes from each person. Make sure you reward and retain the 20%
that are your winners.
- Have an affiliate program? Find the top 5-20% who give you 80%
of your income, and make sure you support, encourage and reward
your winners.
- Do advertising? Have a look at where the sales come from. Then
identify the few ads that really pull, and the few places where
you run them that really produce. Then refine your winning ads,
and run them in those few places that give you the best results.
Run the 80:20 Rule over YOUR business today. It will save you
time, effort, money and resources, and take you further down the
road to business success. Bon voyage!
About the author:
John Payne, a lifetime Marketer, is "The Human Face of Web
Marketing". Each week his Web Marketing Ezine shows over 6000
readers in more than 56 countries how to succeed, with a
uniquely human emphasis on the business of Web Marketing. To get
your free subscription visit http://www.WebMarketingEzine.com NOW!
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