20% of your effort gives 80% of the result – And of course the opposite!

20% of your effort gives 80% of the result – And of course the opposite!

Pareto’s law or the Pareto principle is nothing new, but it’s always present in almost everything we do. It states that 20% of our effort gives us 80% of the result and of course the opposite that 80% of our effort only gives us 20% of our result. If you think about it, the Pareto principle is applicable on almost every aspect, area or level of your business.

- 20% of the customers provide 80% of the turnover.
- 20% of the sales people provide 80% of all sales.
- 20% of the products provide 80% of the sales.
- 20% of the marketing generates 80% of the new customers.
- 20% of the employees demands 80% of the time reserved for employees.

The good thing with the Pareto principle is that you can fight it and another good thing is that most people don’t do it! If you decide to do something about it then you will gain an advantage compared to everyone else and you will gain the tools for success for yourself and your business.

So how do you fight Pareto’s law? – By prioritizing and focusing on doing the right things, which are usually the things with high priority and high impact on the business.

Here is an example of one thing that you can do on a personal, department or company level:

1. Create a list of all your clients and how much you have invoiced them the last year. You will find that about 20% of your clients provide about 80% of the turnover.
2. Recover from the chock and do a deep dive into the 20% of the clients that are profitable and see what kind of common patterns you find. Try to categorize the customers into groups with similar demands and that benefit from a mutual marketing strategy. Example of variables you can use to do this categorization is geographic localization, company size, usage of products/services, industry affiliation, development stage etc.
3. Set a plan for taking care of these existing 20% of the clients and how to develop their business even further.
4. Find similar clients among the other 80% that are not yet profitable and set a plan for how to make them profitable.
5. Create and carry out a marketing and sales strategy to reach similar groups of new companies to the above 20% profitable clients.
6. Do another deep dive into the 25% of the least profitable clients and you will find that they deliver about 1-2% of the turnover, but demand a lot of your time and effort.
7. Terminate the relationship with most of these 25% of the least profitable clients to make time for more important business activities, such as above.

I will finish with a quote from Peter Drucker, an American management consultant which has been described as: "the founder of modern management": “There is nothing quite so useless as doing with great efficiency something that should not be done at all.”

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