Italian economist Vilfredo Pareto observed in 1906 that 80% of the land in Italy was owned by 20% of the population. He later checked the distribution of wealth in other countries and found the same was true. Oddly enough he also observed that 20% of the pea pods in his garden contained 80% of the peas. Hence the ‘Pareto principle’ or 80/20 rule came about.
So what has this got to do with your business?
There’s no magic about 80% really, but it’s a principle that holds true in very many businesses; 80% of sales come from 20% of customers. And 80% of profits too. So why should you care? Three reasons:
- The ‘other 80%’ of customers cause most of the work, cost and aggravation in your business, while contributing little to sales and profits.
- Lots of business people believe that they should treat all customers the same, which seems odd really, because…
- ….it makes sense to treat the top 20% as extra special doesn’t? You wouldn’t want to lose one of these would you? If only you and your team had the time…(see item 1 above).
Look after the 20%, and don’t let the 80% stop you!