Simplify! With 80/20
As advisors to business, we see it on a daily basis. Companies are trying to grow. They develop products, they market, they advertise, they sell, they reinvest. As the company grows, it becomes more complex. Layers of cost are added to support that complexity. Their focus moves away from the original business as brand extensions are added. In short, their top line grows and their bottom line shrinks.
Complexity adds costs and eats into profits. Complexity is added to sales, administration, clients, products, vendors, policies, and facilities. As you grow, you become more susceptible to the 80/20 principle.
Add to that complexity, the economic downturn we all find ourselves experiencing. Companies that have gone through a process of simplification have been able to handle the swings better than those that have systems built for maximum performance.
The concept underlying 80/20 is simple: 80% of anything is derived from 20% of anything.
- 20% of your clients provide you 80% of your sales.
- 20% of your products give you 80% of your profits.
- 20% of your people do 80% of the work.
It is a fact. It makes no difference if you are a manufacturer, a contractor, or a law firm, the principle applies.
What we find is that companies do not spend enough time on the critical 20% of their key customers and products and spend too much time on the less important 80%.
Once you know who your top 20% are, you can begin to understand what drives your profit and where the true costs are in the business.
But, what do you do with that information?
Most people understand the 80/20 principle but few know how to use it to their advantage.
- We have been teaching clients to apply 80/20 to their operations with dramatic results.
- We have worked with companies that have made changes in their pricing, inventory, clients, product lines and policies, each time resulting in better margins.
Hear from a client – Testimonial from Rod Zubella from Vierbicher Associates.Toggle editor
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