80/20 Rule - Where to Focus

A company may take pride from their claim that all customers are treated the same. But should they be? Any air traveler will know that airlines treat some of their customers better than others, notably their frequent flyer members and first class passengers. This is probably the result of applying the 80/20 rule to profitability and perhaps even revenue.

Simply stated:
For many events, 80% of the effects come from 20% of the causes.

Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population.

Since then, thousands of applications of this rule hold true in thousands of fields, and especially in business. Might 80% of your company's revenue or profit come from 20% of your customers? Might 80% of errors come from 20% of your staff? Or 80% of complaints come from 20% of your deliveries? Or 80% of donations for a non-profit come from 20% of donors? Get the idea?

With a little focus on the 20%, a business owner can affect the 80%. Let's go back to the profit example. If a business owner knows who the few (20%) of customers are that generate most (80%) of the profit, he/she would certainly want to pay some special attention to them. Firstly, don't lose them! Meet more frequently with them; take them out for lunch; listen carefully to their needs; improve your service and responsiveness to them; send a birthday card, a holiday gift, etc.

But how often and across how many areas of a business is the 80/20 rule applied? It would be wise for any business owner to survey all possible applications of this rule across the business. Where data exists, the analysis can be generated in a report. Where no data exists, it might prove wise to begin to create it.

In summary, this simple tool can very quickly provide the ability to focus on the small things that have the biggest impact on business results.