The 80/20 Rule is traditionally known as the Pareto Principle, named for Italian economist Vilfredo Pareto (1848–1923). Pareto discovered a recurring phenomenon that appeared in many aspects of life, from land ownership to broader economics: put simply, this principle states that 80% of results come from 20% of effort.
This rule shows up all over business, where you’ll observe that most of your company’s income comes from a small portion of the products and customers, yet how most of your customer/tech support expenditures go to only a handful of customers or situations. And it’s a great way to separate good returns on investment from bad.
Given how important that is, let’s take a look at some ways you can leverage the 80/20 Rule:
80% of Revenue from 20% of Clients
Whether you operate a restaurant or a retail store, there’s a high probability that most of your business revenue comes from a core set of loyal, repeat customers. These regulars are the people who keep your business afloat through tough times, and they’re often responsible for referrals and other good word-of-mouth that leads to additional opportunities.
These are the folks you have to keep happiest because if you burn them, they’ll take an outsized amount of your revenue with them when they go to a competitor. Not just the money they spent regularly, of course, but all those downstream sales from their evangelism. (If you crunch the math, it works out to be that a loyal customer is worth 16× that of a casual.)
Consider how you might double down on the 20% of your customer base that really buoys your continued success. Loyalty programs, targeted feedback surveys, and more can make sure you keep them coming.
80% of Sales from 20% of Products
Every business has products that pay the bills. For restaurants, that might be beverages, soups, or side dishes. For retail, there might be common products that your clientele always seeks out, like milk, eggs, and bread at a grocery store—or screws, nails, and locks at a hardware store.
Understanding what those items are for your business is crucial for allowing you maximize your reputation by putting your signature on them. You want to make sure those popular items are always great. There’s a reason McDonald’s obsesses over its French fries and Coca-Cola, after all.
Look at your portfolio of products: do you see something that has the opportunity to both be great and have a high margin—something to be your fries and soda? What about on the flipside? What’s not worth the time and money to deal with anymore?
80% of Support for 20% of Customers
Offering great customer service is a major advantage for any business, regardless of the industry. It’s a distinguishing feature, an exclusive product in its own right. But if you take a look at the situations that take the most effort to resolve, you’ll find that a small number of customers account for nearly all of your support staff’s time.
Sometimes this is attributable to especially needy customers (some of whom might actually be great revenue drivers because they’re otherwise very loyal), but if you take a hard look at your sales and support processes, at your product and service offerings, you’ll likely find choke points. —Does your retail store sell a product that is difficult to use or often faulty? Or does your restaurant offer a time-consuming dish that often results in late meal delivery and cold food? The best way to figure out what these problems are is by asking your employees what drives them batty on a regular basis?
80% of Success from 20% of Employees
Finally, there’s an unfortunate truth that not all of your employees contribute equally. More than likely, you have a small number of rockstars who generate the most sales or complete the most tasks. Even when everyone is well trained and on-the-ball, you’ll still find that there is cream that rises to the top.
Acknowledging those employees is important for your continued success. They’re the ones who keep the wheels turning, so managers must make sure they’re taken care of—and not just monetarily. While all employees should feel comfortable bringing concerns to the attention of leadership, this is especially important for your stalwarts. When you need to check the pulse of your team, to gauge their job satisfaction, these are the people who need to feel heard.
Making sure employees are indeed well-trained and on-the-ball is an obvious place to start when it comes to taking advantage of the 80/20 rule. Not sure where to get started? The Brandt Group can help you gauge your business’s customer experience, which will uncover the pain points in your operation, as well as identify the employees who contribute the most. We offer mystery shopping services, feedback survey tools for both customers and employees, and leadership training courses for your staff that designed to do just that.
Want to learn more? Drop us a line on our contact page, and tell us a little about who you are and what your business does. We’d love to hear about the challenges you face and work with you to take your business to the next level!
