Ever Thought About 80/20 Rule?

Yesterday (Saturday), I was speaking in front of Management Students. I was talking about the employee composition in firms and their performance. I talked to them about the Pareto principle. Are you familiar with the Eighty-Twenty Rule - the Pareto Principle? What does that mean? Pareto specifies an unequal relationship between your efforts and output.

If you observe your business closely, in most of the cases you find, only 20 percent of invested input is responsible for 80 percent of the results obtained. Look at the business you receive from you customers - its likely 80 percent of your business comes from 20 percent of your customers. I really don't suggest to use Pareto principle to predict the future activities but it usually proves fairly accurate when you examine your past activities.

I just scanned through my business activities to verify this Eighty-Twenty rule and found the following:

• The efforts of 20 percent of staff could drive 80 percent of the firm's business. But it does not mean you need only those 20 percent of employees. 80 percent is necessary to make the environment for those 20 percent to generate more profits.
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• 80 percent of your business comes from 20 percent of your clients.
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• The 80 percent of customer complaints come from only 20 percent of your customers. But that 20 percent is not the same 20 percent you are gaining most of your income from.
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• Most of the works are done in 20 percent of your total work time.
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• In any marketing campaign, approximately 20 percent of your new customers provide you with most of your new revenue.
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• I spend 80 percent of my time with 20 percent of my buddies list in Instant messengers.

Most of the entrepreneurs spend a lot of time bring in more clients and spend a lot of time with the clients who have done only a little business with you. But you will be more successful, if you focus on your most repeat customers first, even though they are few. Read my past blog post - Repeat customers are your brand ambassadors. By putting your attention on sources that have been most trustworthy, loyal and convincing, you'll receive the best result on your time and investment.

Don't prioritize your your time and energy to the sources which is giving you slow result. I want to be clear here, I am not suggesting just to give your 100 percent to only those 20 percent which is interesting, but to balance your time and effort in such a way that you can retain those lucrative 20 percent and explore the the best from rest.

If you give a little attention to this Eighty-Twenty Rule, you will be able to maintain and promote your business with dynamic, productive ways. It lets you build on your strengths.

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