80/20 rule is often called as Pareto Principle and it is one of the easiest and best tools for powerful management. It is easy to learn and understand and it’s simple to optimize any situation with this rule. Pareto Principle is used in every part of life like business, work, personal life, organizational development and similar.
The name comes from Vilfredo Pareto. Pareto vas an Italian economist who discovered the 80/20 effect. He discovered that effect while working on research about dividing the national wealth. Pareto realized that about 20% of families in Italy has about 80% of wealth. That brings us to the conclusion that 80% of tasks can be solved with using only 20% of funds.
Pareto Principle is also known under lots of different names like: Pareto’s Law, Pareto Theory, The 80/20 Rule, The 80/20 Principle, Pareto’s 80/20 Rule, The Principle of Imbalance, The Principle of Least Effort, The Rule of Vital Few and lots of other different names.
80/20 Rule in Busness?
Pareto’s 80/20 Rule is often used in business and organizational management. Why? Well, it’s really helpful with bringing easy clarity to lots of complex problems. It is extremely effective when organization needs to decide where to put resources and efforts.
Another part where Pareto’s Law is very effective is when it’s applied to situations related to selling and marketing. It’s effective with those situations because Pareto’s Law allows organizations to find what activates will be the best and where should they focus the energy to get fast results. Every organization should always try to use Pareto’s Law with marketing and sales because it’s extremely helpful. Lots of companies make mistake and completely overlook that theory.
Some of the best examples for Pareto’s Principle are:
“80% of output was made by 20% of input”.
“80% of total contribution comes from 20% of potential contribution that is available”.
“80% of the results was made by 20% of workers”.
“80% of revenue is created by 20% of customers”.
All that are examples of where Pareto’s Principle can be applied. It is very useful in personal life too because it’s possible to identify the 20% of energy use that offers up to 80% of potential savings. And you can, for example, organize the wardrobe by putting 20% of clothes you wear 80% of time on the top. The important thing to understand is that Pareto’s Principle doesn’t have to be applied with 80/20 ratio. The two numbers don’t even have to add up to 100. They can be whatever you want. And why is the 80/20 often used? Because it was discovered first and published and since then it was widely used with Pareto’s Principle. It was also the other name for it since the start so people automatically think that they have to use 80/20 ratio. Well, it is some kind of a standard but everyone can use what they want.
Examples of Applying the 80/20 rule in Maxi CRM
People and organizations that work with selling stuff often approach customers with some offers. Those offers can be different and every offer can have different impact on each customer. With the help of Pareto’s Principle those offers can be optimized to the best results. For example: 80% of customers come from 20% of offerings (it can also be 70/20, 90/15, 75/25 or some different ratio). With that sellers can see which offerings give the best results.
- Large customers
Another thing where Pareto’s Principle can be extremely useful is with some sellers that have large customers that are often big part of total sales. For example: 80% of total sales come from 20% of customers (or some even bigger ratio). You can see the risk of organization if the ratio is bigger. If the 90% of total sales come from 5% of customers what if you lose those customers? That would be bad. It’s important to identify those customers and take special care of them.
- General situations
Pareto’s Principle can be used in any situation where there’s too much of something. And with good approach to the rule it’s easy to see what parts are unnecessary. So, when confronted with situation like that always to the following things.
Identify which 20% is important.
Retain that 20% and nothing else.
Test the effectiveness after reducing.
If everything works well you’re all done. And remember, 20% is just a guideline, everyone can use different numbers.
Sounds interesting, right? And you can see where the Pareto’s Principle can be applied with CRM systems. It will help with dealing with customers, identifying the most important ones and keep them happy. Good luck!