THE 80:20 RULE -
YOUR FORMULA FOR SUCCESS

The previous 'dirt-world' retail business I managed had a large turnover, a very high profit, and less than 100 lines. Early in 2001, I was contracted to manage another business. This one carries over 800 different lines, yet has a turnover of only about a sixth of the other business, and a lower profit margin. They both have a comparable amount of traffic and credibility in the market, so how can it be that the results are so different?

The explanation starts with Vilfredo Pareto, an Italian economist and political sociologist who lived from 1848 to 1923. He devised the law of the 'trivial many and the critical few', better known as Pareto's Law, or the 80:20 rule. This rule says that, in many business activities, 80% of the potential value can be achieved from just 20% of the effort, and that one can spend the remaining 80% of effort for relatively little return.

• When Sales Manager of a Realty office, I had 19 sales staff working to me. About 85% of the business was written by the four top staff.
• In a Consumer Electrical business I owned, around 75% of the turnover came from the the best-selling 20% of the stock.
• In an eco-tourism business I now manage, there are almost 40 Departments of stock. One department alone produces over 25% of the profit; the next five departments produce the next quarter of profit; the next seven another quarter, and the next twenty-five or so together only produce the last quarter of profit.

Stocks, products, services, insurance, litigation, people - the 80:20 Rule keeps coming up! Look for it and you'll find it.

The universality of this principle should be a powerful guide for you in business. Find out how it applies to your enterprise, and you have the power to set the vital priorities which will mean the difference between failure, survival, and success. Take the time now to look at your business. Look at where the results are coming from, and concentrate on those areas. Look at some of these areas… [continue…]

print this article