Everyone has probably heard of the 80/20 Rule, but have you ever thought about it in relation to your own small business?
If you aren’t measuring all the various processes in your business and keeping track of the metrics as to what is going on every single step of the way, then you may have missed where it is showing up in your small business, but the 80/20 rule is definitely alive and well and working in your business whether or not you realize it and are measuring for it.
You really want to know what is going on in your business so you can make improvements and get the biggest bang for your buck, but in order to do so, you need to be focusing your efforts on the parts of your business where you will have the biggest impact.
If you aren’t measuring what is actually going on, then how can you possibly know what parts of the processes will actually have the biggest impact?
If you are going to use your gut instincts and guess where the critical parts of your business are, then you are in trouble, because you will be wrong a majority of the time.
You need to stop guessing and instead do the work to Know what is going on in your business.
Just like any rule of thumb, it is just a generalization, but there are definitely some nuggets of truth to the numbers.
Truth that you will never know about if you aren’t measuring what is already going on in your small business. And if you aren’t measuring what is going on, then how do you expect to improve anything and grow your business and build your business profits?
Like any rule of thumb it obviously won’t always be exactly 80% and 20%, but sometimes it comes eerily close when you are analyzing the numbers and statistics of the different pieces, parts and processes of your business.
In most small businesses there are actually several areas where it can be seen:
- The top 20% of your Customers will generally produce about 80% of your revenue
- 20% of your Products/Services will generate 80% of Your Profits
- 20% of your sales & marketing efforts will produce 80% of your revenue
- And the one that causes us to pull our hair out, 80% of your customer service complaints will come from 20% of your customers – and usually not the same 20% that are generating 80% of the revenue
If you aren’t measuring everything in your business though, you will have no idea if the above statistics hold true in your business or not, and if they do, then what you might change to have the most significant positive impact on your business.
I think that gives a pretty good representation of how the 80/20 rule applies to Entrepreneurs and Small Businesses in general. How have you seen it in your own small business?
Please Like on Facebook about how you have seen the 80/20 rule show up in your business.
For a couple duplicates and a few more examples, from Wikipedia.org we get:
- 80% of your profits come from 20% of your customers
- 80% of your complaints come from 20% of your customers
- 80% of your profits come from 20% of the time you spend
- 80% of your sales come from 20% of your products
- 80% of your sales are made by 20% of your sales staff
Therefore, many businesses have an easy access to dramatic improvements in profitability by focusing on the most effective areas and eliminating, ignoring, automating, delegating or retraining the rest, as appropriate.
Where can you use the 80/20 rule in your favor?
Post a comment to let me know what areas of your business would have the largest impact with the least amount of effort?
Have A Prosperous Day!