When I’ve written about the 80/20 Rules I was taken to task by several readers who vehemently disagreed with the concept that 80% of one thing comes from only 20% of something else.
One reader we’ll call him John, wrote : “I’ve just read your most recent success newsletter. I must say that I’m appalled that you refer to and believe in the old Pareto law.”
“Did you know that Mr. Pareto lived in the 16th century? Believing in the 80-20 law is like believing that Earth, our planet, is flat.”
“My experience shows that the 80-20 law, or the Pareto law, is unfortunately most managers’ comfort zone. And yours, it seems.”
“If I do 80% of my sales with 20% of my clients, I’m within the accepted parameters, so I’m doing well. Eighty percent of my sales are generated by 20% of my sales force, so we are still okay.”
A second reader, let’s call her Susan, had these comments:
“First of all…there is no 80/20 rule. It’s like saying the moon is made of green cheese.”
“The Pareto Principle… which is where the whole 80/20 thing evolved from… is a statistic derived from a study done in the 1800’s by a guy, named oddly enough… Pareto, when trying to determine the distribution of wealth and land amongst Italians.”
Joseph Juran’s Vital Few vs. Trivial Many
First of all, a few things need to be explained:
The concept behind the 80/20 Rule – also called The Pareto Principle – is that a little bit of one thing generates a great deal of something else.
The Pareto Principle was created by Dr. Joseph M. Juran, a pioneer in the development of quality control programs in the 1920s and 1930s.
Juran observed that quality defects were unequal in their frequency, i.e. when a long list of defects was arranged in the order of frequency, a relative few of the defects accounted for the majority of the defectiveness.
This same phenomenon – which Juran called ‘The Vital Few and Trivial Many’ – also existed with respect to employee absenteeism, causes of accidents, and so on.
Vilfredo Pareto (1848-1923) an Italian economist who studied the distribution of wealth in Italy, didn’t create this principle, Juran did. He just didn’t choose to name his principle after himself. He chose to name it after Vilfredo Pareto.
A Great Example Of Customer Analyses
Going back to John, he continued with these thoughts:
“We did the following exercises with some of our clients: every client is either A, B or C.
“When you start the process,
* A is all the clients that fall within the famous 20%.
* C is all the clients a firm doesn’t want: the non profitable client that cannot be turned into a profitable one.
The client that is always late paying his bills, the client that buys minimal amount, once a year, the crybaby type of client that uses most of the time of a sales rep as well as one customer service rep, etc. In short, the bad business clients by the company’s standards.
* All the other clients are rated B.
“The sales people then have to review all of these “B” accounts within a given period of time, usually 6 to 12 months. And to develop plans of actions to turn these accounts into either A accounts or into C accounts and eliminate them.
“Leaving a client in the “B” status is not an option.
“The results were flabbergasting: the sales went up like a rocket.”
Confirming the 80/20 Rule
As I read – reread and read again – John’s e-mail I felt that he was in fact confirming – and applying – Juran’s theory, i.e. the 80/20 Rule, of the important few and trivial many.
John’s company identified what his A clients looked like and then decided that they would only focus on those quality clients. They had no interest in any prospect who didn’t measure up.
And as he said:
“The results were flabbergasting: the sales went up like a rocket.”
This is the point I am trying to make: When you’re able to identify the things that work. The things that are getting you great results, do more of them.
And stop doing the things that don’t get you the desired results.
Once you know your priorities and #1 goals and objectives, you’re able to focus your time, effort, energy, resources and money on the things that give you a big return and a huge payoff.
That’s what the 80/20 Rule is all about: Generating LEVERAGE.
* Identify the qualities/characteristics of your best clients and look for more of them.
* Study which of your products are most profitable and sell more of them.
* Review your list of things to-do and only work on the tasks that will have a huge payoff.
The flip side is Negative-Leverage, where a lot of effort generates little or no results. Wasted time! Wasted energy!
Unfortunately, that’s what many of us experience each day. We spend 8, 10 or 12 hours each day doing work, tasks, projects and activities that don’t give us any tangible results. And we wonder why we’re working so hard but not getting ahead in business or in life.
Look For Better Prospects
Apply the 80/20 Rule to your prospecting and your sales will soar.
Use the telephone – and ask better questions – to qualify your prospects and you can spend more time with interested buyers and less time with non-interested tire kickers.
If someone isn’t going to buy, I would much rather be told ‘no’ early in the conversations, than work with him for 30, 60, 90 days – or more – and then be told that they aren’t going to place an order.
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