80/20 rule

What is the 80/20 rule?

The 80/20 rule establishes that 80% of outputs occur from 20% of all inputs for a given/known event. In any business, the 80-20 rule is used to identify the probable inputs the are potentially most productive and use them consistently. For example, once a manager identifies different factors that are crucial to the company’s success, then he/she should give utmost priority to those factors.

Although the 80-20 axiom is widely used in business, management, and economics, you can apply this concept to any and every field – such as wealth distribution, spending habits, personal finance, and in many other fields.

What is the 80/20 principle or Pareto principle?

The imbalance of inputs and outputs is known as the Pareto principle or the 80/20 rule. Even though it doesn’t always come out to be an exact 80/20 ratio, this approximated ratio is often seen in various cases. For example:

  • 20% of the sales representatives generate almost 80% of total sales.
  • 20% of loyal customers account for majorly 80% of the total profits.
  • 20% of the silly software bugs cause almost 80% of crashes in software.
  • 20% of patients account for approximately 80% of the entire healthcare spending.

What is the 80/20 rule in marketing?

20% of social media posts generate 80% of the total traffic a brand gets. All those who rely on content marketing for promotion can use this Pareto 80/20 rule for analyzing the most engaged and most reached posts. Once we discover their common characteristics, we can use them in our upcoming content creation. Additionally, content that falls under the remaining 80% can be optimized and adapted to the 20% that works really well.

Is there room for debate for the 80/20 principle?

In spite of its huge popularity, the 80/20 Rule has its own advantages and disadvantages. To start off with, the only hindsight is 20-20 to determine the 20% for concentrating on, and most times, that 20% changes by the time you’re ready to address it again. The critics argue that focusing on 20% and doing just enough to scrape on the remaining 80%, encourages mediocrity.

The Pareto Principle is a theory which suggests that two out of ten items, on any general list, turns out to be more worthy than the other eight items put together. However, the fact is that most people procrastinate on the top 20 percent of the most valuable and important items, and keep focusing on the remaining and less-important 80 percent that hardly contribute to their success.

What are some examples of the 80/20 rule?

Some of the common examples are:

  • 20% of overall criminals commit 80% of all crimes
  • 20% of car drivers cause 80% of all traffic accidents
  • 80% of pollution comes from 20% of all factories
  • 20% of products developed by companies account for 80% of sales
  • 20% of office employees are responsible for 80% of the results achieved by the company
  • 20% of all graduate students have grades 80%

What are the 80/20 rules in sales?

We generally end up wasting our time trying to convince and satisfy all of our customers rather than the most lucrative ones. However, if we obey the 80/20 rule, we always miss out on some or the other things. However, what needs to be taken into consideration is that all our customers are not equal. Some may earn you high amount of money, while some may fetch you only a little, and some might even waste your time. With the last group of people, you lose money if you go selling anything at all.

Our aim should be to close in and focus on those 20 percent of customers who are very essential for your business. Here are some ways through which we can filter that out:

  • Mine the customer lists: It can be the email distribution list or the company’s Facebook followers. But businesses sometimes don’t bother to check sales data on the customers. Start applying the R-F-M rule: Check which customers from the list bought most recently and more frequently, spending the most money. You have now found a chunk of your top 20 percent that needs to be focussed. You can send them Christmas gifts or a postcard when you’re on vacation.
  • Study your region. Figure out where your money-spending customers actually come from. The maximum odds are that people/businesses from certain areas or from certain cities are providing you most of your business. This knowledge is important because you save money that is spent on advertising and other forms of marketing by narrowing it down to specific geographies.
  • Find your customer niche category. The customers who purchase the most expensive products or services always fit a particular demographic.
  • Neglect the customers who keep creating problems. Unarguably, there is 10 to 20 percent of customers who unnecessarily create endless support tickets and consume phone time. If you or your employees have tried to fit a square peg into a round hole for too many times then you need to stop.

    Some examples of this could be: ‘I do not want to consult you anymore’, or some customers are blacklisted occasionally for their behavior or customers are ignored until they go away. But we need to be polite and gracious about it because we don’t want any bad online reviews.
  • Pinpoint the ‘Silent High-Volume High-Ticket Buyers.’ Most of the businesses have very few quantities of these types of customers, especially the B2B segment. These customers send in a purchase order every couple of months, and the amount is usually a big one. They are truly your high-return customers. They require very little maintenance and we might not even notice that they’re present most of the time. Instead, we’re taking up time on the phone with the people who eventually cost us more money than what they give.
  • Ignore the problematic customers. We need to direct our time towards building relationships with the big shots. We can take them out for lunch where you can certainly find there’s a product or service that they don’t know about.

Slide away from the 20 percent of your customers who cause problematic conditions, and focus on the 20 percent who buy from you continuously.

How to apply the 80/20 rule in Marketing and Sales?

The 80/20 rule provides a concrete framework for all our sales and marketing goals which considers our customers, sales people, and company resources, and it may be worth to adopt this Pareto Principle in the company’s business operations. Even though it is an under-rated technique from the sales and marketing point of view, it has huge potential in propelling your business forward. For implementing the 80/20 rule efficiently, we got to have the right data, in the right form.

How to implement the 80/20 rule to your employees?

Encouraging growth, involvement and engagement are the major benefits of applying the 80/20 rule. Here are the different ways in which this rule can be used for driving performance and results from your team:

  • 80% of all decisions should come from your good employees. A good thing about this 80/20 rule is that it forces both leaders and managers to provide guidance, coaching, and empowerment to their team members. Most managers commit a generally common mistake of being overly directive in their approach.

    Giant tech companies, for example – Google and Intel, use objectives and key results for instilling a sense of responsibility and accountability among their employees. Each person has the liberty to create their own set of short-term goals and identify the key steps needed to achieve those. This enables the employees to share their ideas, think deeply, and participate in all company initiatives.
  • Spend 80% of the time listening to these good employees. The main role of a leader or manager is to guide their staff, and not to take on their work. Therefore, 80% of the time should be spent on listening to them and guiding them in proper places. In an ideal scenario, once the expectations are set and all the employees have received proper coaching, feedback, and guidance, the lead should listen about the path taken by the employees and track their progress.

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