Page 115 - The Magic of Tiny Business

Part III  Practice Your “How”

“

If you don’t take charge of your numbers,
sooner or later your numbers will rule you.

”

80/20 as an Operating Guideline

In chapter 3, I introduced the Pareto principle, which
states that 80 percent of results are produced from 20 per-
cent of efforts. Applied to the numbers side of things, it
can mean that:

® 20 percent of your customers make 80 percent of
purchases.

® 20 percent of your product items result in 80 per-
cent of sales.

® 20 percent of your advertising delivers 80 percent of
results.

So why is this good to know?
Mac gives this example:

Several years ago, I stepped in to help a midsize wholesale
distributor in the natural products business that was in a
cash crunch. Early on, I called in the purchasing manager
and asked about his department’s process for ordering (in
the food category you replenish as often as once a week).
He proudly said that he had a very organized system where
his team had vendors that were divided up by days of the
week and the buyers ordered on those days with no real
regard for the volume, the vendor, or indeed each product.

The company sold 6,000 items, and I told him that
he should put more effort into managing the 1,200

98