What… 80% of Our Business is Holding Us Back?

As mentioned in a previous post, we hope you have not forgotten to apply the Pareto Principle (80/20 Rule) to your business practices. At it’s simplest form it says that in any situation, 80% of your effects are from 20% of the causes. Take a minute and look at your customer list and you will be amazed at how closely the numbers show that the top 20% of your customers do generate 80% of your revenue.

Did you know that the principle also works in reverse?

We all can agree that a small percentage of our customers produce a higher percentage of our sales and profitability. It is this small percentage of customers that often make up VIP or special groupings. They receive more of our time, attention, get dedicated service, faster turn around, priority access, discounts… a wealth of benefits that would never be cost effective to expand to your complete customer list.

When you dig deeper into the Pareto Principle, your VIP group of customers and your data, it can help you take a look at possible solutions to what may be holding your company back from potential growth. By reversing the principle you can use it on the other 80% of your customer base and pinpoint negative time and resource consuming activities. Below are a couple of examples that you might apply and help fuel more growth….

Look at the bottom of your customer list…

Pulling out the bottom 20% of your customer list is the quickest and easiest way to apply the principle in reverse. Like your VIP customers produce 80% of your revenue and profit, your bottom 20% will produce the majority of your service calls, which will cause you and your employees 80% of your stress. Really take a look at this stress causing bottom 20% and think about what would happen to your business, service to the rest of your customers, and your ability to grow if you were to respectfully drop them? The best in every industry do this regularly in order to focus on those customers who fit their current target profile. This might very well be something your company has not done and would be helpful…

Examine your supplies & purchases…

Have you taken a look at the list of vendors and supplies your company purchases over a given period of time? If you apply the principle here you will most likely find that 80% of those vendors are supplying you with 20% your needed goods and services. What this means is that 20% is eating up a ton of time. Think about this 20%, how much time and energy is spent processing, invoices, statements, or payments, all for a small percent of your total needs. Look at how you can trim down this list similar to your bottom customers. Once you examine what is going you can plan ahead better. Consolidate your vendors & purchases or choose other vendors where you can get all or most of what you need in one stop. Wholesalers are also a great find as they can stock up on dozens of the items you need and provide more competitive pricing. This is something every company can afford to do regularly and will be helpful.  When it comes to trimming expenses always try to concentrate your efforts on the top 20% of your spend.  Small savings here will have a greater impact.

Review your product list…

Looking at your own product list is tough. It is like stepping outside your own body and providing constructive criticism about yourself. It is no doubt that your product or service line is what has gotten you this far. However, as new ones are developed we typically forget to think about reviewing the old… especially the ones that yield little return. As time goes on this leaves a long trail of products and services that clutter up a customers mind and buying decision. Of course you need to start at the top and first pull out the top 20% that deliver 80% of your revenue. The difficult part might be reversing the principle. What are the bottom 80% of products and services that are only supplying 20% of your sales or profits? It may be that there are good reasons why one or two of those products or services should survive a review (cross-selling, up-selling, retains legacy customers for example), but you should at least force yourself to go through the process. Give this a try and see if there are products and services that might help open up some time and resources to focus on the rest…

Remember, these are only examples and may not be the best route to take for your company. However, they show you how to apply the rule in reverse in a business setting to help free up energy and resources, which in return should allow you to grow. Business is fun when you take a step back to look at your practices from a perspective like this. Get creative and come up with your own unique solutions that fit your businesses model and needs!

Best of Luck,

Frank Silk
Vice President/Business Strategist
Genuine Touch, Inc.

Leave a Reply

Your email address will not be published. Required fields are marked *