Less Is More Using The 80/20 Principle

The 80/20 principle can be a powerful tool for making 2016 your most profitable year ever. What is the 80/20 rule? How can it help you focus your efforts on the part of your business that makes the most money?

What Is the 80/20 Rule?

Also called Pareto’s Principle, the 80/20 rule states that about 80% of your results (in this case, profits) come from 20% of your efforts. If you take a step back and look at your business, you will see this is roughly accurate. It may be 90/10 for some or 70/30 for others. But the rule is solid, and the fact is that out of the many things you do for your business, just a few those make most of your money.

Examples of 80/20 in Daily Life

Let’s think about language. Languages like English have tens of thousands of words. But how many of those words do you need to know in order to communicate? Even just a few thousand words in your vocabulary will make you sound well-spoken to the average person. In fact, you might say that using a mere 20% of the English language (or even less) will allow you to communicate accurately with more than 80% of Americans.

It works when it comes to nutrition too. A person going on a diet may change just 20% of what they eat. Let’s say that 20% includes soft drinks and sugary desserts. Replacing those with water and fruit will likely produce 80% or more of the results the person is looking for.

The Practicality of 80/20 in Business

Sometimes, we get it into our heads that every single client is so important to our business that we can’t afford to lose any of them. Think about 80/20 though.

• Do 20% of your clients or referral partners produce 80% of your revenue?
• Do 20% of your clients or referral partners produce 80% of your problems or headaches?

The answer to both of those questions is probably an obvious yes. So wouldn’t it make sense to get rid of that problem-ridden 20% and focus on finding more clients like the top 20%? Let’s revisit that in a minute.

Stop Thinking in Terms of “Fair” and “Ideal”

To use 80/20 right, we have to retrain the way we think. The truth is that 20% of the people on Earth make 84% of the money. Is that fair? Of course not, but it’s a fact. I’m not saying it’s right. I’m saying it’s how the world works, and that you can run a more profitable business by applying the same principle.

Applying the 80/20 Rule to Your Business

Let’s look at 3 areas you can start applying to 80/20 principle right now to make your business more profitable in 2016.

• Clients – Who are the 20% who bring in the money? You need more clients like them. You need to get referrals from them. Do you not have time? You can get that time by clearing out the 20% of clients who bring in little money and cause most of your headaches. 99% of the time, the ones who cause trouble are the ones who are not profitable. Let go of the “leave no client behind” mentality, so you have time to focus on the profitable 20%.
• Expenses – What are you spending your business capital on? You may find that 20% of your expenses are running 80% of your business. Can you cut some expenses and make room for more important things in the budget. For example, can cutting back some expenses allow you to take on an assistant? Why do you need an assistant? To handle the part of your workload, that isn’t profitable.
• Workload – Here’s the kicker: If 20% of what you do brings in 80% of the profit, why can’t you hire someone to sweat the small stuff for you? You can easily shift that workload to an assistant who may perform the tasks just as well as you, if not better. Now you can focus on your 20% and use that to increase revenue.

Finding Your 20%

Take a minute and think about everything you do for your business. There may be hundreds of things. I challenge you to find the 3 that your business can’t run without, Find the 3 things you do each week that make 80% of your revenue. Now hire an assistant to do everything else and watch your annual income skyrocket. That’s how 80/20 works.

Some final thoughts,

1. Do your homework to determine what is the 20% that is making you the 80% of your money. This will be different for everyone.
2. Ask  yourself if you love the 20% that is making you 80% of your money.  If not, you will burn out and never reach the numbers you are truly capable of
3. 80% is good enough.  If someone can do the 80% as good as you, that is good enough.  You will find that sometimes they will do it even better than you.
4. You will need to do this exercise 3-4 times a year to make sure you are continually focusing on your 20%.  As you grow, your 20% will change. Just trust me on this part.
5. The question isn’t how much does an assistant cost. The question is how much is it costing you not to have an assistant doing everything that isn’t your 20%
6. Once you find your 20%, you now have a very detailed description of what you are looking for in an assistant. They have to be able to do the 80% you won’t be doing any longer.
7. The most important lesson of all? Less Is More. “The Less You Do, The More You Will Make!”

Do you have an 80/20 success story? Tell me about it in the comments
below. 

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