Sunday, October 14, 2007

80/20 Rule:

Wikipedia describes the 80/20 rule as:

“for many events, 80% of the effects comes from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. It is a common rule of thumb in business; e.g., "80% of your sales comes from 20% of your clients."

Gassner Company website refers to it as the “only logic rule that millions of people rely on to help separate the "vital few" from the "useful many" in their activities

The positivity blog does a nice job of enlightening the path by stating:

“So, focus your time and energy on those important 20% of tasks and activities that will give you 80% of the results.”

The rule has endured because it is useful across a wide variety of applications.

80% of your restaurant sales come from 20% of your customers, drill down even further and 64% of your sales comes form 4% of your customers. Identify those 4% immediately. Market to them and sell them more of the products and services they are buying. The process of creating customer advocacy finds fulfilment in this 4-20% grouping.

The legendary Jack Welch of GE fame had a revision of this rule with his 20/70/10. Jack believes that 80% of our revenue comes from 20 percent of our staff. The remaining net 20% comes from 70% of your staff, with the last 10% actually losing money for you and netting out the surplus from the 70%. That is why you need to regularly prune the poorest performing 10% of your staff, your customers, and your suppliers.

20% of the time that you spend working on a project produces 80% of the results. Time management is very important to a harried restaurateur, hence the overriding importance of prioritizing. Review your daily routine and ask yourself, is this the best use of my time? If it is not then delegate duties to others.

One of the most useful rules in business is the 80/20 Rule!