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Want to change your life? I did when I “met” Italian economist Vilfredo Pareto. Actually he passed away in 1923 but I was introduced to him the great book The 80/20 Principle. Get a copy, it’s a must read. Pareto was the economist who came up with the 80/20 principle, the idea that 80 percent of outcomes flow from 20 percent of causes.

A simple example is to look at any church, 20 percent of the people do 80 percent of the work. So how does this apply to your small business? Could 80 percent of your problems flow from 20 percent of your customers, employees or vendors? Maybe so I thought … this needed further study.

It turns out that Pareto’s law has been proven over many years to really be a law that applies not just to economics but to all of life. In many businesses 20 percent of customers generate 80 percent of sales or 80 percent of profits. Employees? Yes, even there I found that 20 percent of employees produce 80 percent of results. Which means 80 percent of employees aren’t producing much!

That’s all interesting, but how does it apply to your business today? I started out by looking at my customer base and tried to identify that 20 percent that generated the most problems, headaches or difficulties. You know, the high maintenance ones. Sure enough, 80 percent of problems came from that group. So should I quit doing business with them?

Interestingly, as I studied more on this I found that the high maintenance group was also be the lowest in profitability (or sometimes generated losses). So the real cost of eliminating the high maintenance customer was virtually nonexistent. In fact the 80/20 principle freed up significant time for three things:

1. Better serving the low maintenance high profitability customer;
2. Acquiring more low maintenance high profitability customers;
3. And best of all, more time to pursue personal goals and family time!

I’ll share more on this with you over the next few weeks, but for now you need to look at your customers. You’ll find there is a group, a 20 percent group that is causing the majority of your headaches and preventing you from achieving those three benefits that the 80/20 principle gives you.

The actual numbers for you might not be exactly 80/20, it could be 90/10 or 70/30, but whatever it is, a small number of your customers are holding you back from real success. Take action today to free yourself from that bondage and lighten your load while improving profitability and gaining more time for the things you really want to do!

 

by Steven Schlagel