The Pareto Principle

An Italian economist by the name of Vilfredo Pareto is known to have proposed the 80/20 rule. According to this rule, 80% of the results are delivered from 20% of the efforts. When applied to the business world, the rule means simply that 80% of the company’s sales or revenue comes from just 20% of the customer base.

How the 80/20 Rule Can Transform Your Business

A common business approach is to make the most of every opportunity presented. Sometimes, you just jump in with all guns blazing. You either want all or nothing. What many fail to do is analyse the situation.

A detailed analysis is necessary in order to understand whether you are making a good business decision or not. For example, it might be more beneficial to concentrate on just a small portion of your opportunities in order to maximise your output. What you need to think about are time and cost efficiencies.

When you are running a business, you need to get maximum output from minimum input. This is how smart businesses operate. Therefore, work on those things that will yield you the best results.

1. Be Clear on What You Are Doing

As a business owner, you need to completely understand your work from the ground up. Once you are aware of every aspect of your service offerings and your business, you can identify the problem areas. Rectifying these problem areas will increase your business efficiency.

2. Measure

Everything needs to be measured using analytical tools. This is the only way to figure out what works and what does not. There are many analytical tools available at your disposal. The most prominent tool on the web is Google Analytics. You can set up goals and check your performance. Similarly, it will also tell you the areas where your performance is great. Measuring results will allow you to build data that you can then make comparisons with.

3. Think Boldly and Work Smart

To work smart, you need to think outside the box. Be bold and take a few chances. Remember, only take calculated risks when the odds are in your favour. It is not wise to be bold when things are stacked against you.

How to Use the 80/20 Principle in Business

Let us now see how we can use the 80/20 principle in business to yield optimum output.

1. Look at Social Media Results

Social media is very helpful in giving any business good exposure. At the same time, it also helps build brand loyalty. On social media platforms, some tactics work better than others. Using analytics, you can work out what works on which platform and the result that it yields. Using this insight, you can concentrate your efforts on those methods that yield 80% of the result. You can either continue with the rest as is or do away with it completely.

2. Know Your Customers and How They Order

Knowing your customer is very important. So, it is important to study how they order and how much they order. This information is necessary to find out who contributes the most to your earnings. Using analytics, this information is easy to find. If you concentrate your sales and marketing efforts on these high-profile customers, you can curb your expenses immensely.

Targeted marketing removes the wasted efforts on the ears that are not listening; with some extra attention on the high rollers, you can increase your earning capacity. The key to remember here is that 80% of your revenue comes from just 20% of the customers. So, it is necessary to identify these 20% of customers so that your team and products can be built out with accuracy.

3. Budget Efficiency

What you deem as a sufficient budget may not necessarily be so. Being both over-budget and under-budget is harmful to business. Studies have shown that most new and small businesses tend to spend as little as 7% of their earnings on marketing.

A very obvious fact is that consistent and smart marketing is necessary to build up the brand name. Using the 80/20 rule, you need to figure out the marketing expenditures that would lead to the best results.

4. Time Management

As a business owner, you might think that you need to work 24/7 in order to succeed. If you can identify that one activity that wastes most of your time and cut it out or outsource it, you will have more time to do the things that actually increase your bottom line, which means more time to spend working on your business. Limiting wasteful activities is the driving factor here.

Streamlining your processes is yet another way to increase your productivity. The 80/20 rule is everywhere. 20% of the activities undertaken lead to 80% of time wastage. In order to manage time better, you should take steps to analyse, understand, and mitigate these 20% of activities. This could be easily done by automation, outsourcing and limiting yourself to certain tasks.

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5. Leave That Which Does Not Sell

In your business, you might be making a lot of products or offering a mix of services. However, you would have noticed that not all of these earn you the same revenue. This means that all your lines are not equally profitable. Keeping them all does not make any sense. Those that are the most profitable need to have your complete attention.

It would not be a bad idea to leave behind whatever doesn’t sell. You will end up with your perfect 80% of high-profit services, and the 20% revenue wasters will be gone. This is a process that always needs review and refinement.

The Final Word

The entire discussion leads to the fact that you need to apply 20% of your effort to get 80% of the results. It does not mean that the remaining 20% of the results are not worth your effort. What it means is to use the 80/20 rule in a manner that can benefit you the most. First, aim your 20 to make your 80 happy.

Being happy in business is paramount. To do this, where needed, redistribute your resources in a calculated way to ensure you get the quality and integrity your clients are accustomed to. Once you have achieved this big target, you can take a breath and work on what remains. As a business owner, it is in your hands to use the 80/20 rule to your advantage. This rule is not pulled out of thin air. It is a strategic, simplified way to see continued growth and a pathway to success.

How to Decrease Your Operational Costs to Find More Profits Immediately

Small businesses and start-ups are always looking for ways to cut expenses. In fact, so are well-established companies. In order to increase profitability, you don’t always have to introduce radical changes. Small things like cutting costs wherever possible can improve your financial situation. When expenses are low, the profits are higher and this makes for a good business year. Cutting unnecessary expenses becomes even more important when resources are limited and finance is tight. This is the case for most new companies.

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Adapt to Changing Business Environment and Keep Your Business Relevant

The world around us is changing at a very fast pace. Keeping up with the changing trends is essential for all businesses. To survive you have to be ready to change and adapt. Trying to keep up might look like a daunting task but this is the only way to plow ahead. The next question that comes to mind is, “How do I do this?”. The answer is quite straightforward. Keep your business relevant! If your business is relevant it can handle any challenge that is thrown its way.

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