If you find yourself always strapped for time – either professionally or personally – this principle could change your life.
The 80/20 Rule (otherwise known as The Pareto Principle) states that roughly 80% of the effects come from 20% of the causes. To put it another way – “about 20% of your customers are generating 80% of your business”. Or, to the negative – 20% of your customers are consuming 80% of your time and of those “bad” customers, they’re only contributing 20% to your bottom line.
When it comes to business, focusing on growing the 20% of your profitable customers will lead to faster growth of your income. Let’s say your company makes $500K per year. If 20% of your customers are generating 80% ($400K) of your income, and you increased your efforts with these customers by 10% which led to an increase of 20%, that’s an additional $80K with minimal additional effort from you and your team. On the other hand, in order to get that same growth ($80K) from the 80% of customers that are only generating a total of $100K already, you will need to expend more effort than you and your current team possesses – so you will need to hire (and pay) more people to go after growth from an unlikely targeted set of customers. So ideally you should focus your effort not only on growing the existing business of the 20%, but you should learn everything about them – and then find more customers like them.
It’s scary, but important, to identify the 80% and minimize the negative impact that comes along with them. When you start to focus on the 20% you’ll find that you’re a lot less busy – and not being busy can feel scary to a lot of people. But this isn’t an exercise in being busy – it’s a new skill that will allow you to become more efficient with your time and allow you to focus on what will actually provide results.
Try this exercise.
Start the month with $100 in cash for either yourself (if you’re on your own) or $100 in cash for each member of your team. Identify the “Valued 20%” and “Auto Pilot 80%”. Then put prices on the following tasks “Responds to Email – $1”, “Responds to Phone Call – $5”, “Meets in Person $20”. Now, for 30 days, every time a team member does one of the following with a member of the “Valued 20%” they EARN that amount, however, if they participate in any of the above tasks with a member of the “Auto Pilot 80%” they LOSE that amount.
Here’s what you’ll find:
Auto Pilot 80% – your team will start to answer their emails less frequently, and they’ll work harder to identify the “true emergencies”. Rather than 30 emails a day to one client it may be just an email at the end of the day summarizing that they received all of the various requests and outlining the steps and timelines to address each point. They will also make sure to evaluate “Do I really need to hop in the car and drive an hour to meet this person?”. Also – after some initial complaining, the customers that are in this group will slowly start to modify their own behavior. There will be some complaints at the start, but remember, this isn’t about being busy, it’s about making you and your team more efficient and focusing on the things that matter. You also run the risk of some of these customers going elsewhere, but remember, they represent only 20% of your business – so while losing a customer may bother you personally, if it’s costing you more in your time and energy to work with that customer than what they’re paying you, it’s not worth it.
Valued 20% – your team members will start trying to figure out how to get more customers in that are similar to this valued group. Since this group typically takes up less of your time (although the lead time to actually get them in the door may be longer) they will open up your team’s time to come up with new product ideas, develop efficient processes and hey, how about even a shorter day on Fridays?
The great thing about this principle is that it can be applied nearly everywhere. Think about your daily life – are there people in it that take up 80% of your time but contribute to about 20% (or less) of your happiness or well-being? Think about the people that make you feel great – the people that really “fill your bucket” (to borrow a term from my kid’s 1st grade teacher). You may only spend brief moments with them, but after the encounter you feel much better – even better than the proportionate amount of time you may have spent with this person.
So why does this matter?
Today’s world is more hectic than ever. As you look at your daily calendar you probably find it filled with tasks – both fun and not-so-fun – that apply to you personal and professional time. Applying the 80/20 rule will help you become more efficient – and you may find that with your newfound efficiency your not as busy as you thought you were, and that’s not a bad thing.