The 80:20 rule

By Mark Annett

We’ve spoken about how important it is to identify your top clients. These typically make up about 80% of your turnover, according to the 80:20 rule (Pareto Principle 1906). This rule seems to apply to many other statistics. For instance, it has been noted that 80% of your warehousing space is often used to store old and outdated stock. Roughly 80% of a country’s wealth is owned by less than 20% of the population. Probably closer to 90/10 in most places. You can see that it’s a rough ratio but a good place to start. To get a more accurate figure specific to your business would require some number crunching from your accountant. What you are left with however, are two types of customers, those who bring in the business and those who don’t, the 20% of your turnover. What you may not know is that the rule applies here as well. 80% of your staff’s time is spent catering to your least important customer base. Doesn’t make sense does it?