The 80/20 Rule & How It’s Impacting Your Business
When great thinker and economist Vilfredo Pareto theorized the 80/20 rule in 1896, I am sure he had no idea just how far this connection could transcend time and context. Yet, in this imperfect world, most things are still not distributed evenly, and the minority continues to own the majority. We see it all the time, from something as 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 your company’s deals.
Without recognizing that the 80/20 rule, you will continue to waste more time, energy and resources on customers and tasks that hurt your bottom line. By understanding this rule, you can make an effort to even out the ratio by focusing on what is essential to increase your profit and productivity. In this blog, I have highlighted two common cases of the 80/20 rule that business owners struggle with, and some tips to help remedy the issue.
The Problem: Only 20% of your clients generate 80% of your profits or sales.
Are you focusing most of your time and efforts on your best customers? You may be surprised to find that you are spending the majority of your time on clients that contribute little to your bottom line. Or, maybe this fact doesn’t surprise you at all, but you’re too busy with time-consuming efforts to appease those small clients that are hard to say “no” to.
The Solution: Weed out the bad clients in order to cater to the best.
Not all of your clients are of equal value, so stop trying to please everyone and instead focus on the most profitable ones. Treat that 20% of customers exceptionally well, and invest extra energy satisfying their needs. Extend your service above-and-beyond the call of duty to make sure these clients are secure as the core of your business’ customer base. Then, identify the traits that make them an ideal customer and use those traits to focus on attracting the kinds of desirable customers that contribute most to your profit.
The needs of your best customers 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 marketing and sales messaging based on your answer. Learn to cater to the particular needs of your specific type of ideal clients, and you’ll see growth on your bottom line.
What about your other 80% of clients? By prioritizing your most valuable customers, eliminate those that create unnecessary headaches and detract from your overall bottom line. Shed the bottom 5-10% of your customers – those that seem satisfied, lower the productivity of your employees and use up most of your company’s resources. While ending these relationships can be tough and scary at times, it allows you to serve your more valuable customers better and focus on attracting more high-quality ones.
The Problem: Only 20% of your time is spent working on “not urgent, but important” work while 80% is spent putting out fires or wasted on non-essential tasks/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 towards preventing problems and improving capabilities within one’s business.
- Building relationships with employees, strategic partners, and within their community.
- Researching and recognizing new opportunities.
- Long-term goal planning and strategizing.
- Recreation, relaxation, and self-development.
80% of our time is spent outside 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 different zones:
The Solution: Audit your time to eliminate “not important” tasks from your plate, and find ways to add more “quality time” to your schedule.
When the majority of your time is spent outside of the “important, not urgent” efforts, start rectifying your time management by minimizing or eliminating the distractions and time-wasters throughout your day. Before scheduling a meeting, ask yourself, “could an email or Slack message suffice in place of the meeting?” Check your email only a couple times a day to avoid being sucked into busy work or feeling the need to multitask. Have someone else take your calls to prevent any unessential interruptions throughout the day. Eliminate social media usage during office hours.
Schedule “quality time” to work ON your business instead of IN your business. As a busy business owner, if something is not on your schedule, you know it won’t get done! Block off some time in your calendar to focus on your business goals, building new relationships, or even something focused on your health and recreation.
Accelerate ActionCOACH has many opportunities to help business owners hone in on the crucial quality time needed to develop and reach your business goals. Join us for our upcoming Annual Planning Day in Urbandale on December 5th, as we help you develop goals and create an Action Plan to improve your business in 2020. We also facilitate ActionBOARD, a group of 8 to 12 business owners from non-competing industries that meet one morning each month to focus on goals, issues and challenges. The board works them on each item collectively – you can rely on the cumulative experience of the board to find a solution that will work for your business.
If you are struggling to find a more stable equilibrium in your profit and time management, contact us today. We can help you perform an audit of how the 80/20 rule is impacting your business and discover a solution that works best for your business.