Customer service, Profitability, Sales

How can Vilfredo Pareto’s peas help you make your business more profitable?

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:

  1. The ‘other 80%’ of customers cause most of the work, cost and aggravation in your business, while contributing little to sales and profits.
  2. Lots of business people believe that they should treat all customers the same, which seems odd really, because…
  3. ….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!

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