The 80/20 Rule of Business – Have You Heard of It?

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Have you heard of the 80/20 Rule? It’s kinda cool, and can be kinda sad. Named for the original proponent of the concept, Vilfredo Pareto (1848-1923), the Pareto Principle outlines the concept of disproportion. Or, to put it more simply, life’s not fair!

And, while the exact percentages may shift here and there based on circumstance, it has value when applied to things such as effort vs outcomes, allocation of resources, and even revenue flow.

“More generally, the Pareto Principle is the observation that most things in life are not distributed evenly. It can mean all of the following things:

  • 20% of the input creates 80% of the result

  • 20% of the workers produce 80% of the result

  • 20% of the customers create 80% of the revenue

  • 20% of the bugs cause 80% of the crashes

  • 20% of the features cause 80% of the usage

Also, recognize that the numbers don’t have to be ‘20%’ and ‘80%’ exactly. The key point is that most things in life (effort, reward, output) are not distributed evenly – some contribute more than others.” (BetterExplained.com)

Pareto Principle in Business & Selling

When it comes to sales in general, and this is very general, approximately 80% of sales will come from 20% of the products or services being offered. Does this mean you can shave all those furnishing catalogs down to one-fifth of what the manufacturers offer and present your clients with a streamlined version of the things you might present to them? No!

As an example, we know a former sporting goods salesman who represented a wholesale operation with multiple manufacturers and some ten thousand products available. Ten Thousand! Did he offer every one of those products to every customer? Of course not. He focused his efforts on the best sellers – but – he also knew that without the other 8,000 or so items in his catalog and warehouse, the peripheral, seldom-sold items, he would not be considered a full-service dealer.

In other words, there is just some stuff you need to have available to be considered legitimate and professional – even if you don’t sell much of it often.

For an interior designer, that might mean working with a local, artisan furniture company as well as a full-service, industry-leading furnishing manufacturer like Kravet.

80/20 Rule Not Written in Stone!

While the 80/20 Rule is a great guide for a small business owner with a few employees or sub-contractors they work with, it’s important to remember that this is not an inflexible law of nature like, say, gravity. The Pareto Principle is an observation of human nature more than anything else and should be understood as such.

Having said that, it’s also important to keep in mind that:

“The Pareto Principle helps you realize that the majority of results come from a minority of inputs. Knowing this, if…

  • 20% of workers contribute 80% of results: Focus on rewarding these employees.

  • 20% of bugs contribute 80% of crashes: Focus on fixing these bugs first.

  • 20% of customers contribute 80% of revenue: Focus on satisfying these customers.

The examples go on. The point is to realize that you can often focus your effort on the 20% that makes a difference, instead of the 80% that doesn’t add much.” But never forget it’s available to you.

So, stick to the one-fifth (or so) of the stuff that matters and the rest will usually take care of itself.

In the meantime, if you think you could use some help figuring out where your most important 20% is, and where that 80% benefit will come from, Ted is available for business consulting to interior designers and furnishing dealers, virtually and face-to-face locally. Just… Get in touch with TD Fall today.