Using the Pareto principle created back in 1896, the 80/20 rule has developed into a common rule of thumb for application at all levels of business , as well as in most aspects of everyday life. In amongst all the intricacies of business plans, marketing plans and overall strategic planning, the fundamental 80/20 rule means that roughly 80% of the effects come from 20% of the causes. This effectively means that 20% of your customers generate 80% of your income. Obviously the ratio can move around because of unique circumstances in some businesses, but in the main the principle will always end up around the same result.
In the case of most SME’s, identifying the 80/20% is important when targeting the optimal use of your resources. Using the technology available within current computer programs, you can easily locate the 20% of accounts that provide the 80% of income. This then allows you to take a hard look at the remaining 80% that generate the 20% of income. It may be around 90/10, or maybe 70/30, but it will still provide you with an excellent insight in to where your efforts should be concentrated.
This does not mean turning your back on 80% of your customers, but it does means that you should refocus your attention to develop targeted marketing strategies for the 20% sector that constitutes the majority of your business. In many SME’s, the owner /or owners are the face of the business. They are the ones best equipped to concentrate on the 20% area that can be improved with service and upselling. This leaves staff with lesser core skills to continue to ensure that the other 80% of customers continue to receive service