Back in the 19th century, an Italian economist quantified the general relationship between a minority of producers and a majority of output. Sound familiar? The simplified version of Vilfredo Pareto’s ratio, known as the 80/20 rule or the Pareto Principle, says that in most cases, 80% of production comes from 20% of producers.
Quality guru J.M. Juran referred to Pareto’s principle as “The Vital Few and the Trivial Many”. If you are running a company, the 80/20 rule has powerful implications for every area of your business.
Pareto’s postulate says 20% of your effort will generate 80% of your results. There is also a corollary: 20% of your results absorb 80% or your resources or efforts.
The game is knowing which is the right 20% – distinguishing the Vital Few from The Trivial Many. 20% of your customers yield 80% of your revenues, and 20% of your customers yield 80% of your profit. But not necessarily the same 20%.
Your sales force (even if it’s just you) will intuitively spend more time with the top 20% customers, but will it be the right 20%? There is also likely to be a top 20% of customer types, a top...