The 80/20 Rule & How It’s Impacting Your Business
When great thinker andeconomist Vilfredo Pareto theorized the 80/20 rule in 1896, I am sure he had noidea just how far this connection could transcend time and context. Yet, inthis imperfect world, most things are still not distributed evenly, and theminority continues to own the majority. We see it all the time, from somethingas trivial as only wearing 20% of the clothes in your closet 80% of the time,to something as dire as only 20% of your sales reps closing 80% of yourcompany’s deals.
Without recognizing that the80/20 rule, you will continue to waste more time, energy and resources oncustomers and tasks that hurt your bottom line. By understanding this rule, youcan make an effort to even out the ratio by focusing on what is essential toincrease your profit and productivity. In this blog, I have highlighted twocommon cases of the 80/20 rule that business owners struggle with, and sometips to help remedy the issue.
The Problem: Only 20% of your clients generate 80% of your profits or sales.
Are you focusing most of yourtime and efforts on your best customers? You may be surprised to find that youare spending the majority of your time on clients that contribute little toyour bottom line. Or, maybe this fact doesn’t surprise you at all, but you’retoo busy with time-consuming efforts to appease those small clients that arehard to say “no” to.
The Solution: Weed outthe bad clients in order to cater to the best.
Not all of your clients areof equal value, so stop trying to please everyone and instead focus on the mostprofitable ones. Treat that 20% of customers exceptionally well, and investextra energy satisfying their needs. Extend your service above-and-beyond thecall of duty to make sure these clients are secure as the core of yourbusiness’ customer base. Then, identify the traits that make them an idealcustomer and use those traits to focus on attracting the kinds of desirablecustomers that contribute most to your profit.
The needs of your bestcustomers will always be the same as the needs of your best POTENTIAL customers.How do you satisfy the needs of your top 20% of clients? Build your marketingand sales messaging based on your answer. Learn to cater to the particularneeds of your specific type of ideal clients, and you’ll see growth on yourbottom line.
What about your other 80% ofclients? By prioritizing your most valuable customers, eliminate those thatcreate unnecessary headaches and detract from your overall bottom line. Shedthe bottom 5-10% of your customers - those that seem satisfied, lower theproductivity of your employees and use up most of your company's resources. Whileending these relationships can be tough and scary at times, it allows you toserve your more valuable customers better and focus on attracting morehigh-quality ones.
The Problem: Only 20% of your time is spent working on “not urgent, butimportant” work while 80% is spent putting out fires or wasted on non-essentialtasks/distractions.
Is your time spent on what is most important for business growth? According to Stephen Covey's Time Management Matrix, business owners should spend most of their time doing "not urgent, but important" tasks, such as:
Working towardspreventing problems and improving capabilities within one’s business.
Buildingrelationships with employees, strategic partners, and within their community.
Researching andrecognizing new opportunities.
Long-term goalplanning and strategizing.
Recreation,relaxation, and self-development.
80% of our time is spentoutside the bullseye, focusing on tasks that are urgent and important (fires),urgent and not important (distractions), or not urgent and not important (time-wasters).See Covey’s Time Management Matrix below to learn more about the differentzones:
The Solution: Audityour time to eliminate “not important” tasks from your plate, and find ways toadd more “quality time” to your schedule.
When the majority of yourtime is spent outside of the “important, not urgent” efforts, start rectifyingyour time management by minimizing or eliminating the distractions and time-wastersthroughout your day. Before scheduling a meeting, ask yourself, “could an emailor Slack message suffice in place of the meeting?” Check your email only acouple times a day to avoid being sucked into busy work or feeling the need tomultitask. Have someone else take your calls to prevent any unessential interruptionsthroughout the day. Eliminate social media usage during office hours.
Schedule “quality time” towork ON your business instead of IN your business. As a busy business owner, ifsomething is not on your schedule, you know it won’t get done! Block off sometime in your calendar to focus on your business goals, building newrelationships, or even something focused on your health and recreation.
If you are struggling to finda more stable equilibrium in your profit and time management, contact us today. We can helpyou perform an audit of how the 80/20 rule is impacting your business anddiscover a solution that works best for your business.