Categorized | Opinion

The 80/20 Rule

By David Peel
David PeelThe proper name for this is “Pareto’s Rule.”
Next time you walk in Wal-Mart or Kroger, just look only for the color red.  You will see red everywhere just jumping out at you.  Of course, the red has always been there, but you saw it because you were training yourself to look for it.
The 80/20 Rule is like that. Once you start looking for it, you will see it everywhere.
20 percent of your bills (housing, car, food, insurance) cost you about 80 percent of your budget. There is a good chance that you spend most of your time in person on social media with only a few people from the entire pool of people you know. What percent of your phone contacts have you called in the last month? 20 percent of your hobbies probably gives you 80 percent of your enjoyment.  For instance, if you love to water ski, you may have a boat that you maintain, store, clean and winterize, but the enjoyment of skiing mostly drives that.
In small business, about 20 percent of your clients create about 80 percent of your income. Commonly, just a few key business customers generate most of the sales. In retail stores, about 20 percent of the very best-selling products bring about 80 percent of the sales income. Likewise, about another 20 percent of customers use about 80 percent of your time.
For larger businesses, many times just 20 percent of employees, just a few key ones, are responsible for 80 percent of a company’s success.  In a business, if you can focus on those key products or services, around the 20 percent that generate the most income, you will grow in a more productive way. This might mean that you occasionally turn away paying customers, because they are part of the 20 percent that take 80 percent of your time but only return 20 percent of your income.
You may even recall that in 2007, 1000 Sprint customers called and sought credits so often that the company waived their termination fees and cut off their service.
In one study, Harvard identified four common reasons why businesses terminate relationships with end users: 1) the declining profitability of specific customers, 2) the lower productivity of employees as they deal with unprofitable customers, 3) changes in the capacity to serve large volumes of customers, and 4) shifts in a company’s business strategy.  The most pressing reason to divest is, of course, profitability. In 2004 and 2005, Florida was significantly affected by seven major hurricanes, so Allstate and Nationwide canceled 130,000 policies going forward.
How do you see the 80/20 Rule applying in your world?
Peel seeks justice for those injured in car accidents, medical malpractice, and nursing homes. He often addresses churches, clubs and groups without charge. Peel may be reached through PeelLawFirm.com wherein other articles may be accessed.

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