Pareto principle

Maximising the impact of the 80/20 principle

Screen Shot 2013-09-03 at 11.49.29I’ve been enjoying a good book by Google Adwords legend Perry Marshall on applying the 80/20 principle to sales and marketing: 80/20 Sales and Marketing

Like Perry, I found that Richard Koch’s seminal book The 80/20 Principle: The Secret of Achieving More with Less had a huge impact on me and the way in which I viewed business and, in all honesty, the world in general. After immersing yourself in this book you start to see 80/20 patterns all around.

In essence, the theory holds – with frightening consistency – that 20% of inputs have 80% of results.

In fact, the only noticeable criticism of the 80/20 principle is that it appears to be moving closer to 90/10!

So a handful of customers or clients might make up 80% of profits or worse, a handful of customers might cause 80% of the headaches!

Seeking out the vital few in every situation can have huge benefits particularly in relation to our most precious resource – time.

What makes Perry Marshall’s interpretation extra useful is how he drills down into the fractal nature of the 80/20 principle. So 20% of your clients might make up 80% of your profits but you can drill down further – in this case, 20% of your top 20% of customers will make up 80% of the 80% of profits. Drilling down repeatedly helps us to seek out the vital few.

Also, look out for the Power Curve in terms of how to maximise pricing opportunities. I won’t spoil this but the book is well worth the investment and it provides links to an online tool for testing the Power Curve. I would recommend Richard Koch’s book as a primer if you haven’t already read it.

I am currently reading Think Inside The Box: Discover the exceptional business inside your organization
which looks at useful and interesting ways of applying the 80/20 principle within organisations. A good recommendation from the 80/20 man himself, Richard Koch.

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