Wednesday, 22 January 2014

80/20 Rule

After a tiring evening after work, I decided to sit and analyse how I spend my day. I took a pen and a paper and wrote down hour wise allocation to each client/activity. I realised that 20% of my work gave me 80% of the results. I asked Mr. Abhishek Muglikar what is this all about. Thus I was introduced to a concept. The Pareto Principle is very simple, yet very important. It is named after Italian economist Vilfredo Pareto, who, in 1906, found that 80% of the land in Italy was owned by 20% of the population.

What was most important about Pareto’s finding was that this 80/20 distribution occurs extremely frequently. For example, in general, 20% of your customers represent 80% of your sales. And 20% of your time produces 80% of your results. And so on.

I quickly realised that this could be used to generate higher revenues and profits. For instance, if I can figure out which 20% of my time produces 80% of my business’ results, I can spend more time on those activities and less time on others. Likewise, by identifying the characteristics of the top 20% of my customers (who represent 80% of your sales), I can find more customers like them and dramatically grow my sales and profits.

I want to take this rule to even higher level. I know that 20% of my customers represent 80% of my revenues. Within that initial 20%, the 80/20 rule also SHOULD exist. Meaning that the top 20% of the top 20% of my customers (or the top 4% overall) represent 64% of my sales (calculated as 80% times 80%).

We can find even more customers with this rule.

I have figured out a way to identify and use this rule to the fullest extent.

The Pareto Principle or 80/20 rule is an extremely powerful tool, when properly applied, for growing any business. The key is knowing how and when to apply it, and leveraging its exponential properties. At Propelis we are reaping its benefits after our integrated research team’s work and efforts we are ready for client delivery. Are you ready?

Ashutosh Muglikar

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