There are lots of ways to increase profit this year. One of the best ways is to focus on the 80-20 rule. Simply put, the 80-20 rule (aka the Pareto Principle) is:
“Roughly 80% of outcomes come from 20% of causes.”
– Quoted from about a million websites.
That likely is true for your business and it might help to change the words a bit.
“Roughly 80% of your profit come from 20% of your effort.”
– Old Shift Financial Insights Proverb.
Why does this matter?
This seemingly straightforward principle can have a profound impact on your profitability in 2024. Consider these possibilities that likely resonate with your business model:
- Approximately 80% of your revenue is generated by just 20% of your customers, services, products, or locations.
- Around 80% of your gross profit is derived from a select 20% of your customers, services, products, or locations.
- A staggering 80% of your costs are attributed to only 20% of your suppliers.
What Should You Do?
It’s time to shift your focus. Rather than expending valuable resources on the 80% that contributes minimally to your profit, prioritize the top 20%. Concentrating your efforts on high-yield customers, products, or services within that top 20% bracket will not only boost your revenue and profit, but also free up time and resources otherwise squandered on less impactful areas.
This rule can also be applied to costs. Typically, 80% of your expenses stem from 20% of your suppliers. Utilize this insight to negotiate more favorable terms with your major suppliers or explore alternatives offering better prices or service.
Feeling stuck identifying the 80-20 opportunities in your business?
If you’re unsure how to identify these opportunities within your business or lack the necessary data, we’re here to help. We help entrepreneurs with one of two problems:
1) I don’t trust my numbers. They’re late, wrong or just don’t feel right (i.e. I don’t have the data I need to run the 80/20 rule.)
2) I believe my books are in good shape, but I don’t get good advice (i.e. I don’t have support leveraging my numbers for the 80-20 rule).
Been burned before? Our work is Triple Guaranteed, contact us to learn more!