Small business wisdom comes from many different sources. From influential quotes to scores of best-selling books on successful business operations, there are plenty of sources to help you grow your business. No matter what the source, enduring wisdom that stands the test of time becomes the rule of business. But do these age-old ideas hold up when applied to the new and ever changing world of small business?
The 80/20 Rule — 100 Years and Still Going Strong
Back in 1896, an Italian economist Vilfredo Pareto demonstrated how 80 percent of the land in Italy was owned by 20 percent of the population. He also observed how 20 percent of the pea pods found in his garden yielded 80 percent of the peas he was able to harvest. These two observations may seem unrelated but this was the birth of the 80/20 rule.
Simply put, the 80/20 rule states that 80% of the effect of anything is usually generated by 20% of the effort. In business this has been translated as 80% of a company’s profits being generated by 20% of their customers. Another interpretation states 80% of sales are spurred by 20% of your offerings. For years this rule was used by companies as a way to analyze data, determine strategic planning and handle customer relations.
Does the 80/20 Rule Still Apply Today?
Today, small businesses operate online and off, making their customer base wider and more diverse than at any other point in history. So does this 80/20 rule still apply when you’re talking about a smaller business operating in the global marketplace?
The best way to determine if the 80/20 rule applies in today’s unique business world is to examine the rule in a business one-on-one. That means tackling small business sales analysis with a keen eye. Analyzing customer accounts to see which clients are most profitable as well as analyzing marketing campaigns and social media interaction to see what’s drawing people in.
This approach can be daunting but the rewards are well worth the effort. In most cases, the 80/20 rule does still apply but the key is finding where it comes into play. Maybe it’s through specific customers or via certain campaigns or even as a result of a handful of products of services you offer. Whatever the route, doing proper small business sales analysis and understanding where your effort is best spent will help you grow your business and improve customer satisfaction.