Using the 80/20 rule to make more money

By Andrew Neitlich | June 14, 2005 | Selling Web Design Services

The 80/20 rule is a crucial rule to follow to run any business. Here are some examples:

- 20% of your clients typically bring in 80% of your revenue. Go out of your way to delight them, while still keeping an eye out for any clients in the remaining 80% who could, with proper nurturing, move into the top 20%. Gracefully “fire” the bottom of the 80% of clients bringing in miniscule income over time, or who are really tough customers.

- 20% of your efforts creating sites get your clients 80% of the impact. Focus your project management on getting that 80% of impact early.

- 20% of your referral sources bring in 80% of your referrals. See the first point.

- 20% of your marketing dollars bring in 80% of your revenues. Build on what works. Stop doing what doesn’t.

- 20% of your employees get 80% of results. Remove the 80% who get 20% of the results, and keep looking for new people who can make it to the top 20%.

- 20% of your tasks in a given day get you 80% of the value of your time. I like to never have more than 3 tasks or priorities on my list at a time.

There have been in recent years a couple of books about this 80/20 principle, but you really don’t need them. Just make sure you are getting maximum impact out of everything you do.

Written By:

Andrew Neitlich

Andrew's consulting practice focuses on helping professionals and entrepreneurs build successful businesses. He received his MBA from Harvard Business School in 1991. You can get his books, sign up for his free newsletters, and learn more about him at www.fastmarketingresults.com. Andrew also maintains Down to Business: SitePoint's Small Web Business Management blog.

{ 12 comments }

Damascus July 6, 2005 at 9:42 am: I’ve always followed the 80/20 rule myself bu never in these forms. I simply subscribe to the practice that:
80% of the time I work IN my business, and
20% of the time I work ON my business (admin, advertising etc)
Great to see an expansion on the idea!
Angus June 15, 2005 at 8:19 pm: I have done a large amount of real life work implementing the 80/20 principle, and I really have to say that the author of this peice has dangerously over-simplified the rule.
Firstly if you “fire” 80% of your customers you will quickly find yourself with very little growth. Why? Because in that 80% there is likely to contain a lot of up-and-coming high profit customers who may be in the early growing phase their business or merely testing your product/service. You toss them early and you’ll never know what you’ve missed.
Also if you remove that large a portion of your business you will very quickly give yourself a bad name in the business, unless you are already extremely strong or well established. This is classic cherry picking and may feel good in the short term but you are sacrificing long term potential.
As “porkozone” stated if you remove 80% of your employees, you are going the find yourself in hot water very quickly. The star 20% need to simply be more nutured than the other 80%. I’ve never heard of a successful business culling 80% of its staff and having the remaining 20% pick up the slack willingly. You may only be driving your stars out of the business.
Basically if you are serious about the Pareto Principle you will want to hold the top 80% (products or customers) and analyse what you can drop from the remaining 20%, not the other way around.
Icheb June 15, 2005 at 5:54 pm: Those 20% of the employees are probably more motivated and more efficient overall, so you still gain something.
porkozone June 15, 2005 at 2:37 pm: So if this is always so true, then if you “remove the 80%” of your staff that is only doing 20% of the work (as suggested), then the 20% left over will be less effective, because they have to do 100% of the work now.
You can’t always squeeze every situation into a round hole, just so it fits a nice mantra.
nzgfxguru June 15, 2005 at 1:54 am: The wonderful Pareto Principle, amazing that it almost rings true every single time!
aneitlich June 14, 2005 at 11:03 pm: perception and hurtdidit:
Thanks for reminding me that I’ve written about this elsewhere on sitepoint (I’ve written so much I’ve forgotten half of it). I guess I try to use the best 20% of insights on 80% of my blog entries :)
hurtdidit June 14, 2005 at 6:26 pm: I remember you writing about this, and also reading it in a book I read (which I purchased based on your recommendation): “Million Dollar Consulting”.
Good stuff! :)
perception June 14, 2005 at 5:47 pm: It really is true and covered rather more fully in one of your earlier articles about core relationship stratgey, if I remember correctly.
Dave June 14, 2005 at 1:12 pm: Very true – also, 20% of your clients take up 80% of your time, and those aren’t usually the ones bringing in 80% of the income.
lajkonik86 June 14, 2005 at 12:01 pm: very true!
REMIYA June 14, 2005 at 11:35 am: Is it really true ;)?
mcjimbo June 14, 2005 at 11:15 am: So true!