How the 80/20 Rule Can Boost Your Bottom Line

"Those who ignore the 80/20 principle are doomed to average returns. Those who use it must bear the burden of exceptional achievement." - Richard Koch

Did you know that you can easily boost your bottom line by knowing what to do, at what time, and in what way? This has also become known as the Pareto Principle.

The 80/20 rule was first brought to the limelight by Vilfredo Pareto – an Italian engineer, economist and sociologist. This was when he discovered that only 20% of his plants bore pea pods.

Decades later, Joseph Juran – an American management consultant – applied this principle to business on a larger scale. He examined the 80/20 relationship in many aspects of business. From there, the LAW or the 80/20 rule took on a life of its very own.

Who hasn’t been involved in an organization where only a small handful of people are active in moving initiatives forward? Where are all the others that committed themselves to the purposes outlined within the group? Why is it that when something needs to get done it is often done by a committee of one which is inevitably you?

Understanding How This Principle Works

Although exact figures rarely match the 80/20 ratio, the principle underlying the equation is pretty sound. It shows that:

●Most profits are earned from the minority sales

●Most work is performed by a few of the business’ employees

● Most consumer complaints arise from a small minority of the entire customer base

How should you use the 80/20 rule to boost your bottom line, productivity, and effectiveness?

You can start by considering the rule as a litmus test that you can employ to prioritize your business tasks, examine your current systems, and pare down your operations as required.

As EDN Networks’ Brett Fox notes, businesses like Touchstone Semiconductors have activated the 80/20 rule for years. This has streamlined their operations and ensured that they provide better user experiences for their customer base.

5 Ways to Work with the 80/20 Rule Successfully

In the following section, you will find several ways you can apply the 80/20 rule to your firm to make the most of all your efforts, money, and time. The bottom-line reason for doing this is to boost both your company’s ROI and quite invariably employee morale.

1. Control Expenses

In the business environment, expenses tend to get out of hand easily especially when you don’t understand the financial operations. Use the 80/20 rule to curtail all unnecessary expenses.

Focus on the top 20 expenses related to line items and find effective ways to manage and reduce these expenses. By so doing, you will tremendously impact your bottom line with minimal investment of effort and time.

I personally do this within my own business by reviewing what line items have a monthly recurring charge. When looking at my online resources like business blogs and social media profiles, I ask myself questions like:

 

● Am I still using these items?

● Do I need the level of access to what’s offered that I am paying for?

● What results have I achieved from integrating with these resources?

For example, in today’s world there are many Websites that offer the ability to join as a member. They directly impact the ability of their users to achieve increased success in some capacity that is of import to them.

Within these membership communities there are often at least 3 levels of commitment that a potential user can secure.

1.Free

2.Basic

3.Premium

If I am currently paying for a premium service but am only using basic level options, then implementing the 80/20 principal on my expenses will aid in driving down the cost of unnecessary expenses.

2. Forecasting Business

Another time-consuming idea is the plotting of your business’ future. As you do this, remember that 20% of your business marketing, inventory, and activities will be responsible for 80% of your revenue streams.

Therefore, you should focus in on all factors that might have an impact on your core 20%. In today’s world, these factors will likely include online activity such as making a website, and tracking its performance. By paying attention to critical areas like these, you will get a better general outlook of the success of your business endeavors.

3. Managing Employees

Managing company employees also consumes time. Use the 80/20 rule to evaluate your entire team and improve the company’s efficiency. As Steve Strauss said, if only 20% of your workforce contributes to 80% of your results, then you should figure out who they are and reward them accordingly.

Ways to reward such achievement may include special recognitions and unanticipated bonuses such as increased pay or time off. As employees observe these incentives coming forward, they will be compelled to push for new yet previously unsecured levels of achievement so that they too may be rewarded.

4. Sales

Give priority to the 20% of your services and/or products that are responsible for 80 percent of your sales. This is especially with regards to your in-store placement and marketing. This will increase their movement and pad your profits.

Do you have specific services and/or products that seem to be consumed like hot cakes? Put them in the lime light so that more people can be exposed to their availability. Far too many businesses fail to secure sells simply because their buyers didn’t realize the offer was available.

5. Customer Relations

Following this rule, 20 percent of your clients will be responsible for most of your sales. Therefore, reward this select group by using your networking and marketing money and time.

People who are actively purchasing products from you are likely to continue doing what they have been doing already if what is offered has perceived value from their vantage point.

While the 80/20 principle is indeed a reality to pay attention to, it should be noted that it is not a hard and fast business law. There are tons of ways to circumvent it. However, as a rule, you should be able to use this principle effectively in-order to continue the growth of success with your operations.

 

How have you personally seen the 80/20 principle played out in your business operations? Please share your insights in the comments below.

Joshua Lewinson is a professional WordPress developer and blogger who has worked on countless websites. He enjoys sharing his expertise with the platform anytime he gets the chance. You can find him online: @Lewinsonjoshua1шаблоны для dle 11.2