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Are You Aware of the 80/20 Rule?

19 Sep 2019 8:42 AM | Anonymous member (Administrator)

It’s been theorised that in many businesses, 80% of positive outcomes, e.g. sales, come from just 20% of your actions. This idea is based on the Pareto principle, a theory suggesting that generally it’s only a small percentage of our overall actions that lead to the biggest results. This in turn suggests that 80% of the time we’re spending energy and money on things which won’t have a large return for our business.

Can you identify this pattern in your business? Perhaps you offer a wide range of party services but the majority of your sales come from balloon design work? Or do you find that the majority of your customers find you through one particular form of advertising over others? 

The 80/20 split is not necessarily always a bad thing and is somewhat inevitable in some areas of business; after all accounting, stock management and business development may not immediately drive sales but they’re all necessary aspects of business. It is important however to ask yourself if you can capitalise on this information, making the most of the things that make you money and cutting back on those that don’t.

Sometimes we can get bogged down pouring energy into the lagging areas of our business rather than focusing on what’s already doing well. For instance, take a balloon retailer who finds that personalised balloons sell extremely well compared to, say, seasonal foils. It may be tempting for them to create a promotion around the foil balloons to encourage sales. But imagine instead, if they created a promotion around the personalised balloons which already generate four times as much profit. Much less effort would be required to upsell these and success would be guaranteed since they were already selling well to begin with.

Similarly, imagine that you get balloon decor bookings easily but find yourself constantly having to upsell your table decorating services with little take up. Why not spend that extra time upselling your balloon services to more people instead? Customers already love that service so use the energy to spread the word about how popular it is. 

Are there any areas of your business where you spend a disproportionate amount of time and energy compared to others? Food for thought!

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