The Pareto Principle
I assume that you are familiar with the Pareto Principle, of 80:20 Rule, and so I want to tell you that the purpose of this article is to EXPAND your conception of what is possible with this rule. I will do this by giving some basic examples in my own experience, and then try to extrapolate and imagine how it might apply in a couple of situations less familiar to me – just to illustrate the point.
Real World Applications
I managed a sand and gravel company years ago, and 80 percent of our sales came from roughly 20 percent of our customers. We had a relatively small number of larger production-oriented customers, such as concrete producers, precast manufacturers, block plants, asphalt plants and bagging operations that we supplied on a daily basis.
While these provided 80 percent of sales, we had a much larger number of customers among contractors and homeowners that accounted for the roughly remaining 20 percent of sales. A key success factor was to keep these top customers happy and make sure you track any changes occurring in the market that might affect those relationships.
Similarly, 20 percent of the projects take 80 percent of the effort. Home projects provide great examples of this. We have several do-it-yourself projects right now. We are building a 4-foot stone retaining wall, a dry-laid bluestone path and a rough stone path to a patio. We are also planting numerous bushes, spreading mulch, and flattening an area by spreading topsoil. The stone projects, especially the wall, will take the most time and effort, and the planting mulch and topsoil will take less effort but also are more time-critical. In this case, we are chipping away at the big time-consuming projects as time allows and otherwise are prioritizing the smaller projects to get them done.
I have played a lot of tennis recreationally and watched children play innumerable matches and practices, so I am enthusiast and hardly an expert. What I observe, though, is that many basic shots, such as forehand, backhand, protecting the net and serve provide a foundation for a strong tennis game. Without them, you’re not even in the game, and with strong basis in them, you can probably beat 80 percent of players. However, to become an elite player and advance within the 20 percent best, you need to master many shots within the 80 percent that only produce the 20 percent of results, and this is where true dedication becomes important in separating yourself from the pack.
I am no expert in retail, but I want to apply some 80:20 thinking to a situation where I am less familiar. When I walk into Walmart, I am first amazed at the mere size of the place. In addition, I know that they need to sell volume in order to make money and make it all work. Therefore, I think it’s all about making the most of every space and achieving a velocity of sales per square foot that makes it all work.
However, I’ve noticed that the food areas are near the front and center core of the space, and the clothing, household items and less frequently purchased things seem to me more toward the remote ends of the store. Food probably accounts for a disproportionately larger contribution to sales. The more extended lines of products, while producing fewer sales, bring more people into the store, and as they pass through the food and other departments may add something else to their cart. It hits me as a microcosm of 80:20 chunks within an 80:20 whole.
The bottom line is that 80:20 is everywhere and it can be very useful to use it. What are some situations you are facing right now, and how can you use the 80:20 rule as part of your thinking to manage these situations better?