Named
after Italian economist Vilfredo
Pareto, who identified
its applicability in a number of areas, the Pareto Principle suggests
that
roughly 80% of the effects come from 20% of the causes.
This
Principle appears to impact upon many different aspects relevant to
entrepreneurs and business managers. For example:
- 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
From
these indicators it would seem that you could easily make dramatic improvements
in profitability by focusing on the most effective areas and eliminating,
ignoring, automating, delegating or retraining the rest, as
appropriate.
For
example, in the first point above, if you stop dealing with the 80% who give you
only 20% of your profit (seems OK doesn’t it?) then what happens? You have simply ‘raised the bar’ in your
business and within a short period of time the 80/20 Rule will once again
apply!
If you would like a copy of the previous Business Boosts relating to the Pareto Principle, please send an email to bizplan@brightwater.com.au with 'PARETO' in the subject line.
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