Vistage Chair & Executive Coach for SMB CEOs | Building Peer Advisory Groups That Drive Leadership Excellence & Business Growth | Expert in Operational Excellence & Continuous Improvement
How do you use Pareto’s Law or the 80/20 Rule? We all have rules and guidelines we have learned over the years. The 80/20 Rule is one of the most widespread. My question is – how do you use it? And what about the two corollaries? Pareto’s Law – initially observed or developed or postulated by the Italian Economist Pareto states that 20% of your customers will generate 80% of your sales. When most of us are in businesses with limited funds and resources, this provides a great way to focus and segment our customers to make certain we protect those most important to the future of our business. Often special pricing, services and loyalty programs are developed to protect these customers from being wooed away by our competitors. I find less often people are aware of the two corollaries – 1. 10% of your customers generate 50% of you sales. And 2. 5% of your customers generate 35% of your sales. These guidelines really allow for building relationships, getting to know those customers most important to the future business with focused dollars, services, and programs. How have you used the 80/20 Rule? #leadershipmindset #ParetosLaw #Vistage
As a scientist and engineer by training, PARETO is one of my favorite words! Here is a blog I wrote about why it should be part of EVERYONE's LEXICON. Complete with examples on SKUs, Sales, and WIP (work in prgoress). https://www.andreajonesconsulting.com/blog/why-pareto-should-be-part-of-your-lexicon-2
- Michael Tetreau I apply Pareto in a management context. For example, the Baldrige Framework recommends leaders address over 30 management processes to achieve "performance excellence." This can be overwhelming for many organizations. Instead, I help them focus on adopting just 4 carefully designed systems that address over half of the recommended management processes. The result is about 80% of the benefit from 20% of the effort. Thank you, Pareto.
Adrián Edelman
8mo
Pareto squared. 4% of causes are responsible for 64% of results
Jaydip Kanjariya
8mo
I love how you're diving into Paretos Law and its corollaries! Focusing on the vital few customers can truly make a difference in business growth. Have you tried implementing special pricing or loyalty programs for them? It's a game-changer!
• Tim Gallagher
8mo
- Michael Tetreau We have been giving this a lot of thought as one of our members diversified her customer base - good thing. That customer has been reducing the per-piece rate. Diversifying works.
Jim Ristuccia
8mo
Michael, leveraging Pareto's Law is strategic. Identifying top customers ensures resources are wisely allocated. The corollaries provide deeper insights. Valuable discussion!
Will Palmer
8mo
Great approach, Michael! I use Pareto's Law to prioritize tasks and focus on the most important ones that will yield the greatest results.
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8moIt’s your #1 corollary that I most use, though with different numbers. My experience and research uncovers that twenty percent of your customers generate 120 to 140 percent of your net profits. Sixty percent of your customers don’t generate any profit, and with 20 percent of your customers you lose money on every sale, bringing your profit down to the level on your P&L. Unfortunately, many businesses don’t know which category each of their customers fall into, or how to fix it.