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Using The 80/20 Principle In Your Business

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The 80/20 connection originated in Economics when Vilfredo Pareto discovered a correlation between effort and cause, namely 80% of effort comes from just 20% of causes.

Today in almost any situation, the 80/20 principle is identifiable. Where effort is measured so too its causes. Revenue is the main focal point for business, and it’s easy to measure this effort and the causes responsible for it.

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, marketing and human resources to operations.

So 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 end up wasting 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 great business decisions.

Goals & Task Setting

Business owners and managers can use the Pareto Principle in decision making. Goal setting and tasks prioritisation 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 so you can 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, in the real world, time and resources are finite 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 the role of looking after your best clients.

Promoting and Rewarding Staff

As a manager you’re confident that the decisions you make are just, when you have evidence to back it up. When it comes to worker performance reward the conscientious staff who stay late to finish a task or assist their peers, your action is great for workplace morale.

If your actions are queried by other staff, your analysis using the 80/20 rule, not only supports your decision but also 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 to ensuring they remain valuable assets in 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 how is work out what proportion of your marketing budget should be spent on each activity?

Digital Marketing is the same as all marketing, insofar as it is not renown for delivering instantaneous results and measuring its success to understand 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 so too is a visitor view of a blog post on your website. You can identify it’s source which most likely from a keyword search but which activity i.e. email marketing or PPC or content marketing deserves the lions share of your budget based on conversion value?

Let’s see how assessing the value of conversion is done with the 80/20 rule with some marketing examples from Smart Insights.

Measuring the search visits from keywords or social shares from social updates will trend 80/20 in much the same way as all other activity 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 tact here is to focus on who (visitor or customer) took the action using which strategy (e.g. email, PPC etc) and with this measurement, you can organise your marketing budget accordingly, i.e. reward the 20% of strategies which provide the highest rate of conversion (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 area of the business requires consistency and professionalism and that 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, 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 utilised 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, over-investment remove inefficiencies as well as reward success.

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