What is the 80/20 rule and how will it my business succeed?
The Pareto or 80/20 Principle was invented by the economist Vilfredo Pareto in 1897 after determining that 20% of the population in Italy owned 80% of the land. This principle is well-known and widely used by business leaders in all types of industries.
This principle has also been at the core of my successful sales career by providing me with the focus needed to drive revenue growth by using my limited time and resources more efficiently and developing tangible goals. What the principle conveys is that 80% of outcomes, consequences, or achievements will result from 20% of all inputs, causes, or efforts. We can achieve more with less, in other words.
Every role that I have held has helped validate the 80/20 rule: 80% of my revenue goals have been generated by 20% of active accounts; 20% of our TV shows or website content topics accounted for 80% of our ratings or online traffic respectively; 20% of our cable or satellite providers accounted for 80% of our distribution; 20% of our sales people accounted for 80% of our revenue, and so on.
So, how do you apply the 80/20 Principle?
Identify Your Top Targets
- Who are the customers or clients that account for 80% of your revenue or business?
- What content topics, formats, or categories drive most of your site traffic?
- Who are your top performers within your company or team?
- Who or what are the top drivers for your distribution?
Size matters. In the business that I worked for, there have been, on average, 7 to 12 accounts that drive 70% to 90% of our company’s revenue or distribution. Larger corporations might have 25 clients that accounted for most of their revenue and/or distribution.
Putting the Principle into Practice to Set Goals
Now that we have identified the top clients, customers, content topics that drive our business, we need to create a strategy and set goals that provide a roadmap for how we will invest 80% of our time, resources and capabilities against these targets. Let’s say that you have a total of 50 active customers or accounts, probably no more than a dozen of them are driving 75% to 85% of your business.
Here are three key goal questions to explore:
- How will you nurture, deepen and grow these 10 to 12 clients or customers?
- What capabilities will be tailored to the needs and interests of your key targets?
- What new offerings can you develop to grow these accounts?
Learn to let go or spend less time on accounts that generate little to no business. You can always develop a standardized and turnkey offering that doesn’t drain your time and resources.
Using the 80/20 Principle to Generate Results
The Great Recession in 2008 wreaked havoc on the advertising sales industry. I had just taken on a role as publisher of a magazine when we lost 50% of our revenue and laid off 1/3 of our employees. We identified 25 accounts that generated 90% of our advertising revenue along with 3 to 5 business drivers that these accounts shared. We created strategy and goals that focused on retaining the 25 accounts. We eliminated several key points and resources associated with these initiatives that addressed the needs and interests of accounts that were no longer among the top 25. By the end of Year 1 we had stemmed our losses and by the end of Year 2 we were back on track. By Year 3 we exceeded our revenue goals. Use the 80/20 rule to stay focused on the vital, few priorities that will have the most impact on your business.
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