The 80/20 Principle or Pareto’s Law, has become almost a platitude in today’s world, especially the marketing and selling part of business.
But… very few have a deep understanding of its tremendous power to leverage everything in your world. When you truly understand it, it becomes transformational at every level.
It will multiply your time, effort, people/relationships, free up your critical resources and exponentially increase your revenue, profits and cash flow, because it changes the way you think and thus act.
Over 20 years ago, just after I had purchased my new car & truck dealership, I hired Jay Abraham to be my marketing coach and I spent a year with a small group of other highly motivated entrepreneurs periodically traveling out to Los Angeles to be coached, prodded and grilled by Jay Abraham.
At about the same time I picked up a book by Richard Koch called “The 80/20 Principle: The Secret of Success by Achieving More With Less” and I began my journey into combining the 80/20 principle with what I was learning from Jay Abraham in my sales, marketing and business practices.
These two encounters turned out to be the most enlightening years of my business life.
One changed the way I thought about marketing and selling and the other changed the way I thought about the principle of Putting First Things First. And when I combined these two new paradigms, it took me closer to what I called Effortless Power…how to get more and better results with less time, effort and resources.
When you understand the 80/20 Principle you will see the world through a different lens.
You will see immediate opportunities for increasing your profits & cash flow by recognizing not only what is wildly important but also what is a waste of your time and efforts.
There are highly leveraged implications for your employees, vendors, suppliers and all other stakeholders as well.
You will view your talents and passions differently.
You see 80/20 is not just a handy rule-of-thumb. It is a principle of life.
In general:
- 80% of your revenue, profits and cash flow comes from 20% of your customers, employees and/or products.
- 80% of your problems come from 20% of your customers or employees.
- 80% of your productivity comes from 20% or your time.
- 80% of what you need to know comes from 20% of the book you are reading.
- 20% of your customers, in any bucket, have the potential to spend 5x’s as much as they are right now.
And so on and so on…
From a purely marketing and selling stand-point, the real gains come from identifying and understanding that 80% of your marketing/advertising efforts only influence 20% of your sales and 80% of your current customer list produces 20% of your results.
If you are treating all customers the same, then that means that 20% of the customers who could be upsold to a higher level of service or product or who would purchase more often if asked with the proper messaging are being wasted.
When you identify the 20% of your ideal target audience that is likely to respond positively to your offer, you suddenly stop wasting money, time and effort on the wrong crowd and instead, you have five times more money and effort to expend on the right audience – the 20% that will produce 5x’s or more.
Here is How it Looks from Your Employee Side.
Let’s say you have a team of 10 sales people. The 80/20 principle says 2 of them are generating approximately 80% of your results and the other 8 are generating the remaining 20%.
Example: Your team of 10 generate $100,000. The top two likely account for $80,000 or $40,000 average each, while the other 8 generate $20,000 or $2,500 average each. That means man-for-man, the top two are somewhere in the area of 16x’s more effective the than the other eight. The top 20% generate four times the results with one fourth the people.
The unbelievable news? 20% of the top 20% [4%] produces 80% of the 80% [64%] and 20% of the 4% [.8%] generates 80% of the 64% [52%] of the results. The leverage continues like this until you can’t measure anymore.
How does knowing this and who your top performers change the way you think about finding, hiring and keeping only the 20%’ers?
This is why I love 80/20.
When you improve the effectiveness of the most important 20%, 4% and then 1% of your business [i.e. marketing, salesmanship, operations, etc] your results improve exponentially.
When you have identified the 20%, then the 4% then ultimately the 1% to focus on, you gain more productive time, more profits and cash flow, more and better results from fewer customers and or employees and you do it all with little to no waste.
The Good News: It is not unusual to make only a few changes to see your profits increase by 20% then 30% the 50% or more in less than 90 days. All this depends only on your willingness to change the way you think.
What if you could better predict your market, business, potential bottlenecks, problems and pain points?
What if when all of your competition were flying blind and with a certain sense of fear because market competitiveness was causing their profits and cash flow to dwindle and become inconsistent, their costs to acquire customers kept creeping up and their returns from these customers kept going down and you, on the other hand, had the secret formula on how to identify the ideal customers and employees, the ideal products and services and you were making 1.5:1, 2:1 or even 4:1 more on every transaction.
If you could see your marketing and selling world around you in a totally different way – would you take it?
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