The Pareto Principle - How To Get More Leverage Out Of Your Business

The Pareto Principle - How To Get More Leverage Out Of Your Business

Ever noticed that around:

* 20% of your customers account for 80% of your sales, or

* 80% of customer complaints relate to 20% of your products or services, or

* 80% of your sales are generated by 20% of your salespeople, or

80% of your time is spent dealing with the “messy” 20% of your business transactions?

These are just some examples of a natural phenomenon known as the “80/20 Rule”, or the ‘Pareto Principle” (Pareto was an Italian economist who once observed that 80% of the land in Italy was owned by 20% of the people).

Management - The Pareto Principle - How To Get More Leverage From Your Business - Image 1.JPG


In short, it’s saying that only a small portion of your business is generating the bulk of your productivity and profitability. So, if only 20% of your effort is producing a massive 80% of your results, what would happen if you put 100% (or 5 times your present level) of your effort into those things that produce your results?

Well, an increase of 5 times your present effort would (theoretically anyway) result in a fivefold increase in that current 80% of your results…equating to a potential increase in results of an incredible 400%!

That’s the power of leverage…putting in a little effort in the right places to get extra big results.

Now, let’s look closer at some examples of how you might apply this thinking to your business:

*  How are you and your team using your time? What training or other changes are you making to maximise your time input into the “critical few” tasks that contribute to results – and how are you minimising your time on the “trivial many”?

*  How well do you really know, understand and service your key customers – the relatively small number who account for most of your sales? Do you offer them a premium service? Do you have a system for finding more like them by encouraging their referrals?

*  Where’s your effort being directed across your range of products or services? Are you focusing on growing revenues from your main revenue generators? Are you a specialist rather than a generalist?

* What’s your approach to resolving the inevitable customer complaints? Are you especially focusing on resolving the systems and quality questions that come from the relatively small number of complaint types that occur regularly?

So here’s the recommendation. Look at whatever the things are in your business (and your life) that are contributing the most towards your end goals…and simply do more of them. That way you’ll leverage your efforts - and help you to avoid running out of life before you run out of dreams!