Pareto principle (also
the 80-20 rule, the law of the vital few
and the principle of factor sparsity) states that,
for many events, 80% of the effects comes from 20% of the causes.
Business management thinker Joseph M. Juran
suggested the principle and named it after Italian economist Vilfredo
Pareto, who observed that 80% of income in Italy went to 20%
of the population. It is a common rule of thumb in
business; e.g., "80% of your sales comes from 20% of your clients."
When applying this to sales, 80% of your revenue comes from 20% of a
business customers. Also, 80% of sales are
made by 20% of
your sales force. Of course the real question is "do 80% of the profits
come from 20% of the sales?"
You don't need statistics to know that if you do not
allocate your business resources to the high profit
and customers, the net of your business declines. Here are a few rules
to increase your revenues:
Remember, 80% of your results
come from 20% of your effort!
- Do Important
Activities for Important
- Get rid of the
problem customers. They
most time and end up being the least profitable. Even if they are
profitable, is life worth it?
- Focus on the core
areas of you business.
advertising to your core customers.