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How the 80/20 Rule Can Make Your Business Fly

You may have heard of the 80/20 Rule before, but in case you haven't, it's often called "Pareto Analysis" and was first given this name by management thinker Joseph M. Juran. He named it after the Italian economist Vilfredo Pareto, who observed 80% of income in Italy was received by 20% of the Italian population.

Since J. M. Juran adopted the idea, it might better be called "Juran's assumption".

Briefly, the Pareto Principle states: "only a 'vital few' factors are responsible for producing most of our problems". The converse is also true: 80% of our successes stem from just 20% of the things we do right.

And the really interesting thing is this applies to almost everything we do, no matter how finely we slice and dice our set of factors.

For example, take the typical cross-section of people you'll get attending a presentation on marketing.

On average, about 80% of them disregard everything the speaker has to say or, if they actually think it's all good stuff, find or invent reasons it won't work for them in their particular set of circumstances.

And 20% won't.

Then, if we take the 80% of "naysayers" and apply the 80/20 rule to this "new" 100% we'll find about 20% of them will be actively hostile to the ideas presented. And if we then took this 20% as our even newer 100%, we'd find about 20% of them will be truly vitriolic and spend most of his or her time trying to prove the speaker "wrong".

And that's fine. We should expect it. It's inevitable and unavoidable.

But now let's get back to the 20% of the people who won't disregard what the presenter has to say.

This 20% takes the time and makes the effort to research the subjects the presenter talks about - including research on the presenter - and then they actually take action and apply the information to marketing their businesses.

Now, you might now be wondering how this all applies to you and your business. Well, as I mentioned before, the 80/20 rule applies universally, although, you'd be forgiven for thinking this was just my way of obliquely taking a swipe at business owners who won't take good advice.

Nope. It isn't that.

And if you apply the 80/20 rule you'll figure out why I wouldn't waste my time complaining about people who aren't listening anyway (clue: since I understand the 80/20 rule, would I spend a lot of time on the 80% of people I know are resistant to my ideas or would I concentrate on the 20% I know won't be?).

It's simply this: you must get it into your head that the 80/20 rule applies to everything about your business.

So, if you examine your records you'll find approximately 80% of your income comes from approximately 20% of your product or service line. You'll find 80% of your "regular" income comes from 20% of your "regular" customers. You'll find 80% of the things annoying you about your customers comes from just 20% of them (and I seriously suggest you identify them and bar them from your business).

I mean it.

You'll be amazed at how much people will want to do business with you when you tell them they can't.

You'll find that 80% of your receipts come from about 20% of the sources, and you'll find 80% of your profits comes from 20% of your products. The numbers might not be exactly 80/20, but the point is if you do the digging, you'll find a massively unbalanced relationship between efforts and results.

OK, so now you know what the 80/20 rule is, what's the best way to use it?

It's easy.

Systematically go through ALL aspects of your business and apply the rule to all of it.

Then, when you've figured out where the 80/20 rule lies, make sure you're spending 80% of your time on the 20% of the things that make you the most money.

In my experience, businesses that are struggling have this focus wrong: they're spending 80% of their time and effort on the 80% of the bad stuff (and if you dice it down you find they spend 80% of the new 100% of their wasted time on the worst 20% of the problems).

You can re-engineer your business to take advantage of the 80/20 rule. You can market and position yourself so you attract only the 20% of prospects out there who are willing to pay top prices for great service and quality products.

One client of mine not too long ago discovered his shop was taking up almost 100% of his time (because he was behind the counter every day), but was responsible for only 10% of his sales. The other 90% came over the Internet.

My advice to him? Close the shop! It's a total waste of time.

Wouldn't you take a 10% paycut if it meant you didn't have to turn up for work? And, realistically, it's not as if he's actually going to lose 10% of his business, not when he can invest the time previously spent standing behind his counter like a lemon in promoting his business online.

There is a corollary to the 80/20 rule called the 95/5 rule. It's very similar to the 80/20 only it describes the phenomenon with more "intensity".

So, for example, maybe 20% of the business owners I deal with who learn all this marketing stuff and actually do something with it see benefits in the form of increased profits, reduced costs, all with less work; but 5% of them are going the extra mile and doing all the "stuff" and making extraordinary profits.

At a conference I was at in the US not too long ago, the host did a quick breakdown of the attendees' incomes and the figures were stunning - they fit the profile perfectly: approximately 5% of the people at the conference were making upwards of $5 million a year.

Finally, you need to understand this: you cannot change the percentages. It's like a law of nature. Maybe it is one.

I'm not mathematician enough to be able to tell you if it's one of those beautiful mathematical constructs the eggheads keep finding or not.

But empirically, it serves us well to accept it.

And since you cannot change it, the only thing you can do is choose which group you want to belong to.

Article Source: http://www.articlemetropolis.com

Jon McCulloch is the hottest marketing sensation in the UK and Ireland and is now taking the US by storm. Receive his free monthly newsletter through your letterbox by leaving your details here: www.JonMcCulloch.com

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