In Part 1, we wrote about quality management guru, Dr. Joseph M. Juran, who referenced the 80/20 Rule (Pareto’s Principle), as a useful tool to help business owners prioritize and manage their work focus. He determined that 80% of a company’s business’ revenue comes from 20% of its top clients.
We focused on the 80/20 Rule and how it could help your business productivity:
- Learn how to distinguish between high and low value customers.
- Examine your “To Do” list; you may be just a few “important” issues.”
- Risk comes in different sizes.
- Keep tabs regularly on your 80/20 clients and replace them with customers who bring higher profits into your business.
In Part 2, we’ll consider “Practical Limits to the 80/20 Rule.”
By now, it’s apparent that the 80/20 Rule can easily be applied to both our professional and personal lives. But we need to be careful not to mismanage this tool and make serious errors.
- Don’t just focus on the 20% at the expense of the other 80%. While you’re accountable for increased profits from your biggest clients, it’s important to “balance” your efforts with getting rid of customers who consistently bring in low profits for your company.
- The 80/20 rule might cause you to lessen your diversification reach for investments. So, it might be a good idea to look at your overall portfolio mix and make necessary adjustments. If you keep applying the 80/20 rule, eliminating the wasteful 80%, eventually you’ll end up with nothing.
- While 20% of planning and execution time invested in a project might generate the majority of the results, less valuable” efforts still need to be made as they contribute to the overall end result. You still need to answer emails or attend meetings – just spend less times reading emails and have shorter meetings.
So, advice from the 80/20 Rule entrepreneur, Yaro Starak? “Work hardest on elements that work hardest for you. Reward the best employees well, cull the worst. Drop the bad clients and focus on upselling and improving service to the best clients.”
If you would like to know more, please contact us.