Pareto’s Principle says that:
- 20% of your clients give you 80% of your sales revenue.
- 20% of your products or services make up 80% of your profits.
- 20% of your activities generate 80% of the results that are important to you.
- 20% of your clients give you 80% of your problems – and they’re usually the ones that give you the least profit.
When you analyze your sales results, you’ll find that this is a pretty accurate reflection of your business. Most people have heard of Pareto and his principle. Most will nod their head in thoughtful agreement when presented with this information. You can almost see their eyes squint a little in concentration as they sit back, rub their chin, and with a big sigh, acknowledge that, yes, this is a universal truth.
Then they continue to do what they’ve always done.
But if you really understand and act upon this 80-20 rule, you can transform your business, escalate your income and make your competitors look like rookies in comparison.
If you work with Pareto a little bit, you can see that your most profitable work is done with only a few clients, with only a few products, with only a few focused activities, probably achieved on one day of the week. So what would happen if you identified and focused your energy on those important clients, products and activities, but did it two days a week? You might double your sales!
Here’s what to do:
Analyze your most profitable clients.
- What do they have in common?
- What makes them a great client?
- Identify and meet other prospects that have similar characteristics and needs.
Identify your most profitable products – the ones that have the greatest margins. You might find that you make more money on products that you sell fewer of, but the high margin makes them more profitable than products you sell in a much greater volume.
Identify your most profitable activities will enable you to sell more profitable products to more profitable clients. They include things like:
- Plan and develop your strategy. Make time to think!
- Expand your thinking by reading, training and working with a business coach. You have to earn the right to be an advisor to profitable clients.
- Get referrals from your profitable clients to others like them.
- Learn everything you can about your profitable products. Become the absolute expert so you know how to make those products appeal to more profitable clients.
- Learn everything you can about your profitable clients. Know them. Understand them. Begin to think like them.
- Identify where your most profitable clients hang out and go there. It might be the golf course, a certain association or a certain club.
- Look after your current profitable clients like they mean the world to you. Because they do.
- Focus on quality first and quantity second.
- Continue to raise the bar on your minimum size client. Begin to weed out those who will always be more trouble than they are worth.
- Begin to consciously abandon your unprofitable products, activities and yes, even clients. Sometimes you have to fire some clients.
This doesn’t mean you get disrespectful, cocky or arrogant. We’re not advocating unbridled greed and avarice. You should always treat everyone with respect and dignity. But it’s not good business to treat everyone equally. Give more of your time and attention to those clients, products and activities that will help you to achieve your goals of working smarter not harder. Every hour you spend in focused planning to develop your strategy will save you several hours of doing unnecessary activities.