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Applying the 80/20 rule in your business

80/20 rule

Today I want to share an interesting thought. Most business people know of the 80/20 rule (Pareto's Law) but just accept it as fact without using it to help boost their bottom line.
 
A few years back I was analysing our client base and found that 79.8% of our business came from 20% of our clients. I suppose I shouldn't have been that surprised but the fact that it was so close to the 80% was.
 
Then I got thinking. What if we were to lose one or two of the bigger clients? So I selected two at random, assumed we lost them and re-ran the numbers. All that happened was that the 80/20 ratio stayed intact but the revenue and profits dipped. Conversely, if we took on two even larger clients the ratio would stay the same but this time revenue and profits would increase.
 
This led me to looking closely at the second 20% of our clients - could any of them increase the business they did with us, to replace the spending of the larger clients, should they fall by the wayside? The answer was no, we had worked with most of them for some time and, in the main, they were in their comfort zone and reluctant to push their businesses to the next level. With fewer new people starting direct response businesses we had a problem.
 
The answer was to look overseas. We search for and found big US mailers who were interested in testing the UK market. We knew that any successful test would result in big campaigns and sure enough that's what happened.
 
Now the 80/20 rule was no magic wand, no matter what you do it will still exist.  However, it did help us identify a potential big problem and encourage us to look for solutions early.
 
80/20 can be applied to almost anything - 80% of your problems probably come from 20% of your clients. We decided to restrict the work we did in one area to people we knew and liked as the rest in that area were more trouble than they were worth. We still have 80% of the problems coming from 20% but the number of problems are reduced to a manageable level.
 
Since I started working part-time I'm convinced that I am almost as productive as I was working full-time because now I can focus on the important things rather than get sucked into trivial matters like problems with the franking machine etc. Hopefully I can get 80% of the work I did before in 20% of the time. 
 
I hope this journey away from direct marketing problems and solutions has given you some food for thought.

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