Too often business people tell me that they have so much to do they don’t know where to start. Well, that should never be the problem. If you don’t know where to start, just remember the wisdom of our old pal Pareto. It will get you off to a flying start.
For those of you who don’t know, or can’t remember, our old pal Pareto was an Italian economist who came up with a most important principle. Idly sitting in his garden drinking a glass of wine one sunny Roman day he discovered that 20 percent of the pea pods in his vegetable garden produced 80 percent of the peas. Ruminating on this remarkable fact he discovered that 20 percent of Italians held 80 percent of the national wealth. The more he looked the more he found that this 80/20 relationship existed.
He reckoned, and the natural laws of the universe support it, that around 80 percent of your results will always come from 20 percent of your efforts. You’ve probably heard it referred to as the “80/20 Rule”. Most people I meet know the rule but amazingly very few have put its power to work in their businesses.
What Pareto tells us is really the power of leveraging. That means identifying the smallest amount of effort that’s needed to produce the biggest result. His fabulous principle can be applied to the three balls you need to juggle in your business, no matter what sort of business you are in, to get the best possible results.
The first ball relates to your customers, clients, patients or whatever you call them. Simply, it’s that 80 percent of your business (and profit) that is generated from around 20 percent of them. But here’s the 64-dollar question. Do you know who those profitable 20 percent are precisely? If you do, what are you doing to make them feel special over and above the normal good service that you give the rest of your clients? More importantly, when you have identified them and find some common characteristics what are you going to do to find some more like them?
If you don’t know who this elite 20 percent group are, you can find out by listing your clients in descending order of the revenue they’ve generated in the last year or so. Then start adding down from the top until you’ve got 80 percent of the revenue and by golly there’s that magical top 20 percent. Now that you know them work on them and getting more like them and see the results improve!
The second ball is about the products and services you sell. Guess what? Amazingly again, 80 percent of your profits come from around 20 percent of the products and services you sell. Now you know the drill. List out your sales by product or service in descending order of the revenue generated. Then add down from the top and when you get to 80 percent of the revenue, there’s that magic 20 percent of your products or services that is so important. Now ask yourself the critical question. How do we sell more of these top revenue generators? See the results improve!
The third and final ball is a sobering one. For you it’s how you use your time. You see it’s another Pareto stunner. Put simply, 80 percent of your results are produced by 20 percent of the time you put in. To work out where your payout is here, start keeping a time diary in which you record your activities and the results they generate. Pretty soon it will help you sort out your gold activities from your garbage activities.
Juggling these three balls well is what business is all about. You can hack away at the edges of your business by doing other things that seem worthwhile. But if you want to do things that are worthwhile invest some time in looking for leverage the Pareto way. It’s the way to turbo charge your business.
Oh, and by the way, if you have any problem working out the Pareto results in your business dump it in your accountant’s lap. It’s duck soup for them and, for the insignificant amount the exercise will cost, it will repay you many, many times.
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