Using The 80/20 Principle In Your Business

The 80/20 connection originated in Economics when Vilfredo Pareto discovered a correlation between cause and effect, namely that 80% of the effect comes from just 20% of causes. Today in almost any situation, the 80/20 principle applies.

Are 20% of your clients the main causes for 80% of your revenue?

Probably so, and the same outcome is likely to present when considering everything in your business from accounting and finance to marketing and productivity.

How can we use the 80/20 principle to achieve more in business?

80/20 Rule In Your Business

Startups are always tight on time and investment. Therefore it’s easy to waste a lot of time in all areas of the business while it ‘learns as it earns.’ There’s a lot to nail down, from what to sell, to how to market it, and the 80/20 rule can be used to make significant business decisions.

Goals & Task Setting

Business owners and managers can use the Pareto Principle in decision making. Goal setting and task prioritization can be easier when you know the probable outcome. Study what’s come before and focus new goals on what worked, i.e., the 20% of activity that delivered 80% of the results.

Greater efficiency frees up time and resources to grow the business more productively.

Managing Key Client Accounts

In an ideal world, every client is equal and deserves equal amounts of your time.

However, time and resources are finite in the real world, so your top billing clients need a greater share. Top salespeople will tell you: It’s easier to sell to an existing client than it is to get a new client.

Therefore use the Pareto principle to identify which clients deserve more time and investment and whom in your business should spend more time with them, i.e., your high-performing staff matched with your top clients.

Plus, with ongoing analysis, you’ll know when to hire or assign a dedicated customer account manager to look after your best clients.

Promoting and Rewarding Staff

As a manager, you’re confident that your decisions are just what you need when you have evidence to back them up. Regarding worker performance, reward the conscientious staff who stay late to finish a task or assist their peers; your action is excellent for workplace morale.

If your actions are queried by other staff, your analysis using the 80/20 r supports your decision and empowers everyone in the business to do better.

Also, use the 80/20 rule to identify the people within the business you can not do without. If top performers resign, how would it affect your business? Rewarding these workers with promotions and incentives is a positive step toward ensuring they remain valuable assets to your company.

Marketing

There is no denying digital marketing is a crowded space with too many ‘must-do’ strategies like content and email marketing, SEO, CPC, and social media marketing. The challenge for businesses is determining what proportion of their marketing budget should be spent on each activity?

Digital Marketing is the same as all marketing, insofar as it is not renowned for delivering instantaneous results, and measuring its success in understanding the RIO takes a keen marketing eye.

It’s hard to compare the value of conversion from different marketing strategies. Here is an example of how challenging it is to compare two similar yet different marketing initiatives and their conversion value.

An ‘open’ and a ‘click’ in an email marketing message is a conversion and a visitor view of a blog post on your website. You can identify the source most likely from a keyword search. Still, which activity, i.e., email marketing or PPC, or content marketing, deserves the lion’s share of your budget based on conversion value?

Let’s see how we can assess the value of conversion using the 80/20 rule.

Measuring the search visits from keywords or social shares from social updates will trend 80/20 in much the same way as all other activities mentioned earlier, so you can use the Pareto principle to work smarter and focus first and foremost on identifying the action taken by your targeted audience.

The switch in strategy here is to focus on who (visitor or customer) took action using which strategy (e.g., email, PPC, etc.). So with this measurement, you can organize your marketing budget accordingly, i.e., reward the 20% of strategies that provide the highest conversion rate (from your targeted audience) with 80% of the budget or thereabout.

Using Pareto’s Principle reduces the risk of over-investing in digital marketing that returns poor results. 😉

Accounting

The accounts and bookkeeping side of any business must be a well-oiled machine. This business area requires consistency and professionalism, which doesn’t translate into needing more staff.

Small business accounting software can make light work of the complexities of tax and accounting as startups and small businesses can use the systems and software to generate reports, create quotes, and invoices, manage payroll, and deliver on some of the management accounting tasks that use to be done by staff.

The 80/20 rule can guide you in assessing where you need to staff up in your accounts team and which accounting software can be utilized to deliver a consistent and efficient service.

Summary

The 80/20 rule has been observed in computing, sports, engineering, and business for decades. Every facet of the company can benefit from its application to identify ways to reduce costs, and over-investment remove inefficiencies and reward success.