Page 189 - Paulisms: Gold Nuggets for Small Business

I used to ask, ‘Now that you have analysed the 80/20 rule, do you go to the 80% or 20%?’ Unfortunately, some got it wrong. You go to the 20% of the achievers to get more out of them. The rest will gobble up all your time and you won’t have the same increase in performance.
The 80/20 principle is a good way to look at sales of products. That 20% brings in 80% of the sales. And when you probe deeper, you will find there are products in that 80% that are not worth keeping.
It is essential to have good accounting, but just as essential to have good data on revenue, gross profit, net profit and unit sales for all products and sales channels. Then you allocate overheads to each. Be specific. This enables a quick analysis on how they sit within the 80/20 principle. You will be able to see what products and sales channels are bringing in the 80%. You will be surprised at what you find.
When I introduced a product into New Zealand in 2001, I applied the 80/20 rule. I knew we couldn’t stock the whole range the market leader had, so I applied the 80/20 rule in only bringing in three sizes to their twelve... the 20% that brought in 80% of the sales. Over the years, I got pressured into bringing in other sizes on the back of sales people’s requests (that has issues in itself) and I relented, only to drop those sizes years later as it was not viable to carry them with low sales. Applying the 80/20 rule kept our stock down (reducing capital and storage space) and focussed us on the items that sell.
When looking at figures of sales people, products or sales channels, always consider the 80/20 rule. When you are not achieving and are getting bogged down, or working out revenue, units or time, analyse the 20% that is bringing in the 80% of the results.
The 80/20 rule is so under-respected nor understood in business, and applying its principles will make a huge difference to your efficiency and