Italian economist Vilfredo Pareto formulated the 80/20 rule that states, for many events, roughly 80% of the effects come from 20% of the causes.
In the context of business the distribution shows up in several different aspects. 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
Knowing how the rule applies to your business can be critical to making the right decisions in tough times. Take for example “80% of your sales come from 20% of your products”. Focussing on the best products can give dramatic improvements in profitability and allows you to eliminate, ignore or re-program the others.
