Seven Key Areas in Your Business where You Can Apply the 80 - 20 Rule

The 80-20 rule, also known as the Pareto Principle, says that 80% of outputs result from 20% of inputs. In business, a goal of the 80-20 rule is to identify inputs that are potentially the most productive and make them  into priority. Using the 80/20 rule, allows you to focus your business to maximise profit, production, or any other aspect of your business, with a minimum of effort.

One of the areas where the 80/20 rule was applied is quality control in the 1940s by Dr Joseph Juran. He is considered to be the father of many quality management techniques still used in industries. He was born in Romania in 1904, after his family emigrated to the United states. Juran’s visit to japan helped  to kick start a change in attitude toward quality control in the nation. Then onwards Japan started to produce high quality products at a lower price.

Juran’s quality management approach is based on three principles. One key principle is the 80/20 rule. He found that 80% of problems with products were caused by 20% of the production defects. By focusing on and reducing that 20% of production defects, overall quality could be increased. His main phrase was “The vital few and the trivial many”. In other words, a small percentage of root causes in production or service cause large defects in cost or quality.

 

7 key areas where we can use the 80/20 rule:

 

1.Goal setting 

Goal setting is a very important thing in any business. It always motivates you to achieve the aim of your business. The basic and important matter in goal setting is “WORK TOWARDS YOUR MAIN GOAL ALL THE TIME”.  You can see the difference between the rich people and poor people regarding goal setting. 85% of rich people have one big goal and work on it all the time. Poor people start their day with low value tasks, and they can't complete their actual task. So, if you want to be wealthy, pick one big goal and eat the biggest frog first. But unfortunately the majority of people are busy with the least important 80% that contribute very little or nothing to their business.

 

2.Level up your productivity

According to the rule, the first 20% of your time and effort brings in 80% of the results. The second 20% brings in another 10% of the results and the balance 60% typically brings in 10%. As the distribution continues, the percentage of results you generate gets lower and lower. So, you should prioritise your work for the day which makes up 80% of the result. You should have clear clarity about your target and work for that. If you start with the hardest but more rewarding task in the morning, everything else in your day is easier to complete. Once you identify your major task, then ensure that you get this done at a time when you find you are most productive.

Eliminating distractions also increases your productivity. So, try to avoid your main distractions, whether they be your phone or other non- work related activities. This will help you the whole day go smoothly without interruption.

 

3.Time management

Many people spend their time doing things that are really not important for their success. Without time management you can't achieve your goal. Most people think that working excessively long hours produces good outcomes. This will create an unequal work life balance. By following the 80/20 rule you can spend time wisely. One of the great secrets of time management is that you only get your life under control to stop doing things. For that you should prioritise your daily task and determine which task is more important for your business. If you have 10 tasks to do, by adopting the 80/20 rule you can prioritise which two tasks will be worth more than all the other eight put together.

 

4.Marketing 

In the sales and marketing ecosystem, you can use the 80/20 rule as a guide to come up with highly effective marketing plans by asking questions such as:

• Who are our most valuable and loyal customers?

• Which marketing channels bring us the most conversions and sales?

• Which are our best-selling  services?

Once you identify them, tag them as a top priority for your sales and marketing efforts.

 

The 80/20 rule can also work with SEO by considering that 80% of your website traffic may come from 20 % of the keywords you use. So check your analytics to see which content or social media posts bring more traffic to your website and you can focus your efforts on those specific areas.

 

5.Customer Focusing

Customer support is a crucial aspect of any business, so it is important to ensure that your customers are satisfied with the customer service they receive. The Pareto Principle indicates that a small percentage of your total number of customers produces most of the revenue. Similarly, only a specific service attracts the most sales. Analysing the leads and current customers you have, can help you to determine which ones have produced the most revenue in the past, so that you can focus on that. You need to identify who is your right 20%. Selling with the right person or building a relationship with the right person is the key factor in business success. When you identify your regular customers who use your business and spend money, you should make a strong relationship with them.

                                 

6.Identifying and Fixing Problem

The 80/20 rule is highly useful for prioritising problems so that you can determine which issues affect your business badly. This helps to take appropriate action to solve the major issue of your business. Pareto principle is a simple decision making tool for assessing the major problem and resolving that. Develop a plan to focus on the top 20% of the problems that will result in the 80% of the result. And  customer support is also very crucial for our business. And the 80% of customer complaints come from the 20% of your service or from your staff. So a proper analysis of which services are causing problems or which staff causing customer loss helps you to sort out the issue.

 

7.Profitability

In any business 20% of salesmen make 80% of the sales or profit and also 80% of your profits come from 20% of your customers. So the 80/20 rule helps you to concentrate on the focus area of your business. So once you identify the top 20%. You need to ensure that this group of customers remain satisfied and give little extra attention to this category while they visit your place. And you can work on bringing more customers into this category.

 

The 80/20 rule is a powerful tool, and you can use it to save costs and improve productivity. It is not a method to completely eliminate the non critical area, rather it is a simple way to allow you to shift your focus on the major area or major goal that will yield great results. Always remember that the 80/20 rule is not designed for work less, it is designed to help you to work smarter.

 

(Author is an Accounts professional in AK & Partners Auditors and Chartered Accountants. AK is one of the leading audit firms in qatar. Please send your comments and suggestions to salihanijiya222@gmail.com)