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The Amazing 80/20 Rule has the power to grow your business up to 16 TIMES FASTER and make your life a whole lot less busy and complicated.  Got your attention? Work through this Menu to learn some of the best lessons Profit Savvy has to offer.  Yellow Belt

The 80/20 Rule is easy to understand but it can take you a lifetime to perfect.  But you can start benefiting from its amazing ability to simplify and focus straight away.

Goals

As usual, we strongly encourage you to set goals for applying 80/20 to both your business and your private life (see Goal Setting Recipe).  If you already have an understanding of how 80/20 works, and because we consider the 80/20 Rule such a fundamental tool, we strongly recommend you pause now and set goals for how you might apply 80/20.

If you are not yet familiar with 80/20, you can skip this step until you know more about the Rule.

Introduction to the 80/20 Rule

The 80/20 Rule is widely referred to throughout Profit Savvy because we consider it one of the fundamental rules contributing to optimising your business for growth and productivity with least input of your time and resources.

If you do nothing else in this Menu, you should take the time to read The Amazing 80/20 Rule Tool so that you have an understanding of what is implied when you see this link in other parts of Profit Savvy.

If you find it interesting, you can also see more of this in the Masterclass at this link.

Business Applications of 80/20

Now that you have a grasp of the fundamentals of 80/20, let's see how we can apply them to business situations.

Koch (see 80/20 books in Great Business Books Menu) lists 10 areas where 80/20 can be applied in a business as the first 10 below.  We think there are others as well and have added them to the list.  We link to a number of standalone articles on these topics from this Menu. 

  1. Strategy
  2. Quality
  3. Cost reduction and service improvement
  4. Marketing
  5. Sales
  6. Information technology
  7. Decision making and analysis
  8. Inventory management
  9. Project management
  10. Negotiation 
  11. Staffing
  12. Time Management

1. Strategy

There are many ways to consider business strategy.  We provide a sample of 80/20 Rule applications to strategy in the 80/20 Business Analysis article.

See also discussion on "Where to Optimize" your business in the introductory 80/20 material in the The Amazing 80/20 Rule Tool article.

4. 80/20 Marketing

See separate subsections on "Marketing", "Customer Relations" and "Supplier Relations" in the introductory article  The Amazing 80/20 Rule Tool

5. 80/20 Sales

You can tune your sales process to improve sales and profit and benefit from the multiplier effect of implementing comparatively small improvements at several stages of your sales cycle/process for a disproportionately large benefit.  

Read more at 80/20 Sales Growth to get an idea of how it is feasible to get double the sales and triple the profit from 80/20 type changes.

7. 80/20 Decision Making and Analysis

80/20 can help to quickly cut through to the core issues when solving a problem or moving towards a decision.

Read more in these articles 80/20 Problem Solving and 80/20 Decision Making.

8. 80/20 Inventory Management

If inventory plays an important part in your business, you may already be aware of the impact it can have on profit and cash-flow.  Inventory has a bad habit of suffering from bloat as soon as you look away from it for any length of time.  

See this article - 80/20 Inventory Management for suggestions on how the 80/20 Rule can improve your inventory management.

10. 80/20 Negotiation

See a discussion on this as an example in The Amazing 80/20 Rule Tool

11. 80/20 Staffing

There are several write ups about 80/20 and its use in staffing issues.

See 80/20 Staffing article and the specific discussion on Sales staff in the 80/20 Sales Growth article.

12. 80/20 Time Management

See the subsection on Time Management in the 20/20 introductory material in The Amazing 80/20 Rule Tool

Combined approaches

The 80/20 Rule suggests some useful business applications.

Other methods, theories and approaches in Profit Savvy approach the same problems from different angles.  Some interconnections include:

Advanced 80/20

80/20 Analysis Methodology

In several places we suggest that you perform an analysis to determine what are the 20% of "things" (e.g... sales, staff, customers) that contribute the 80%.

This involves listing the candidate 'things" in a spreadsheet and sorting them for analysis.

The article 80/20 Analysis Methodology describes how to do this.

80/20 Multipliers

The introductory material on the 80/20 Rule describes the general use of the 80/20 Rule but it doesn't introduce some of the real power of the Rule.

Used properly, the Rule has a multiplier effect that can lead to growth in your business in the order of 16 times (16X) more than you are presently experiencing with an unstructured approach to your business and your life.

There is a second multiplier effect available in the advanced use of the 80/20 Rule.  By way of example, once you have some base line information on how many people will buy your product/service at a particular price, you can use the mathematics of the 80/20 curve to estimate the number of people who will buy a stripped down and cheaper version of your product and alternatively the number of people who will buy a version of your product several times more expensive.  Elsewhere in Profit Savvy, we encourage you to consider Line Extensions. This multiplier effect of the 80/20 Rule will help you estimate what Line Extensions may work in your product range.  See 80/20 Multipliers.

80/20 Maestro

The 80/20 Rule seems very straightforward when you first come across it.  However, you can easily spend a lifetime perfecting your skills applying the 80/20 Rule.

Ideally you should consciously practice the 80/20 Rule until it becomes a habit and you do it routinely.  Until it is a habit, you are likely to slip back to your old, less efficient, ways.  Find more on how to advance your skills at the 80/20 Maestro article. 

Wrap-up

In keeping with our usual practice, we wrap up what you may have learned elsewhere in this Menu.  To maximise the impact from your study to date, we encourage you to:

  1. Create a set of metrics (see Metrics Recipe) that allow you to measure your improvement in applying and profiting from the 80/20 Rule.
  2. Go back to the goals that you set in the Entree section in this Menu and refine those goals in the light of what you have learned about 80/20 since you first started running through this Menu.

Resources

Wikipedia: Pareto Principal

You Tube: several videos

Books:  see on Amazon for affordable eBooks readable on Kindle.  Highly recommended reading.  Koch is the guru on this subject.

  • The 80/20 Principle (Koch, 1997).
  • The 80/20 Individual (Koch, 2003).
  • 80/20 Sales and Marketing: The Definitive Guide to Working Less and Making More (Perry Marshall).

 

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