Is it possible to turn a good business into a great business by following the 80/20 principle? The latest blog from The Icehouse takes a look.
You will have heard of the idea. Basically, you get 80% more positive outcomes by concentrating your energies into 20% of your activities. You will be more productive and achieve better results if you make small adjustments – to your business or your personal life – by concentrating on the areas where you believe you will get the most return.
| The 80/20 principle
Conceived by Wilfredo Pareto, the Italian economist in 1906, ‘the 80/20’ was originally based on the fact that 80% of the country’s economy at the time was driven by the wealthiest 20%.
Advocates practice it in all areas of their lives. Want to lose weight? Eating healthy foods 80% of the time, and less healthy foods the remaining 20%, will do the job. Looking to have a wardrobe clear-out? You only wear 20% of your clothes 80% of the time, and research does indeed indicate that 80% of your smartphone browsing is spent across 20% of your apps.
Taking it to your business has two parts; working out which areas you should be focusing on – probably to generate more leads or sales – and then implementing some ideas.
| Get your customers buying more
If 20% of your customers create 80% of your revenue, what can you do to not only keep those 20% happy and spending, but generate more purchasing from them? Could you focus your efforts in building stronger relations with those clients? This might be something as small as meeting them for a coffee or sending them a ‘hey, how are things?’ personal email or phone call.
If you get the results you’re looking for, then that’s time well spent, as opposed to wasting time and resources trying to get sales from the infrequent 80%. However, remember that it is a balancing act and every customer matters. The trick is to work smarter, rather than harder.
| Cut costs in delivery or fulfilment
Similarly, if 20% of your products make up 80% of your revenue, what can you do to generate more profit from these products?
Can you make efficiencies in your costs per order or how you fulfil those products or services to your customers? Can you strike yourself a better deal with the freight company that supplies you with your most profitable product? Or could it be more around special promotions around that item? Perhaps two of your sales team are selling more than the rest. Is there a case for investing in them to enable them to become even better salespeople?
| Prioritise your daily tasks to get more value
And what about you? If you have 20 things to achieve on Monday, but don’t think you’ll be able to complete them all, prioritise… and work out which four will be the most valuable to you or your business. You can make this as micro as you want, from answering emails to attending meetings.
Furthermore, can you make this work for you every day to get the sort of outcomes you’re looking for? Remember to keep trialling and testing, and keep going back to see what’s working and what isn’t?
The ultimate hope is that you’ll soon be working on your business, rather than in your business.
Make some winning adjustments now and Build A Better Business.
For more business ownership and leadership advice check out more of our blogs.