Using the 80-20 Rule to Improve Organizational Performance

Using the 80-20 Rule to Improve Organizational Performance

It is said that 80 percent of effects result from 20 percent of causes. This 80-20 split is known as the Pareto Rule. The Pareto rule was named after Vilfredo Pareto, an economist from Italy who found that 80 percent of the country’s income went to 20 percent of the population.

Since his discovery, the Pareto Rule has proven to be applicable in many disciplines besides economics.

  • It has shown up in the workplace, where 80 percent of the work is done by 20 percent of the employees.
  • It has been noted in non-profit organizations that 80 percent of giving comes from 20 percent of the population
  • And in sales, it is generally the case that 80 percent of your sales come from 20 percent of your clients and 80 percent of yours sales come from 20 percent of your product line.

Let’s focus on the sales aspect. How can you take advantage of the Pareto Rule in your day-to-day sales activities?

1. Test the rule.

First check to confirm that the Pareto Rule holds true for your clients and the products you are selling. The Pareto Rule has been tested and found to hold true in several industries and instances; however, there is always an exception to every rule! If it does prove to be applicable in your case, focus on the needs of the 20 percent of your clients responsible for 80 percent of your sales and on the products you have been selling to them. If you get in new products similar to the ones that they have been buying, take them to these proven buyers.

2. Change your product line.

Consider change. Figure out which products constitute the 20 percent of your product line that has been selling and find new products that complement them. Check to see if you can lower costs by doing away with some of the other 80 percent of products.

3. Focus.

If your paperwork shows that certain customers are buying certain products, increase your budget for these products and increase your spending on ways to attract these clients. In other words, focus your spending on the areas that are making you money.

4. Advertise your strongest products.

If 20 percent of your products are far outselling the remaining 80 percent, use those products for advertising. They have the potential to bring in customers who, in turn, might purchase the other 80 percent of what you are selling.

5. Seek referrals from your best customers.

It has been said that birds of a feather flock together. Use the 20 percent of your clients who buy the most from you for referrals. They probably have a lot of friends who are just like they are.

Your sales can increase by using the Pareto Rule. Make certain to do the research first. Check your results and base your decisions on them. The Pareto Rule has been tried and proven true time and again. It is worth seeing if it can be put to work for you.

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