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Rule of 80/20


Shinlocke

 

80/20 Rule

The 80/20 Rule, also known as the Pareto Priniciple, was originally was established in 1896 by an Italian economist Vilfredo Pareto. He created a mathematical formula describing the unequal distribution of wealth that was observed and measured in his country. He showed that approximately 80% of the land in Italy was owned by 20% of the population. The principle was further developed by observing that 20% of the peapods in his garden contained 80% of the peas.

In short the rule basically says roughly 80% of the effects come from 20% of the causes. When applied to business it tends to state, "80% of your sales come from 20% of your clients". Since then it has become an integral part of business philosophies. There are quite a few different variations and methods that this concept have been applied. It doesn't have to be applied to just business either, almost everything from relationships, interactions with customers to productivity can apply this rule.

  • 80% of a company's profits come from 20% of its customers.
  • 80% of a company's complaints come from 20% of its customers.
  • 80% of a company's sales come from 20% of its products.
  • 80% of a company sales are made by 20% of its sales staff.
  • In a healthy relationship a person only gets 80% of what they really want out of it.
  • 80% of a company's employee's are trivial, 20% are vital.

There are also a few misunderstandings to this rule based on the misunderstanding of the concept. For example 80% + 20% does not equal 100%.

You will never be able to please everyone, there is no 100% of the market. In terms of the 'vocal minority' and complaints about games. You can only satisfy 80% of the people who have brought your product. 80% of the people will be satisfied, while 20% may be negative. The same can be said that if 80% of your business comes from 20% of the customers, then do you focus more on that 20%? Although a good portion of the business comes from that 20%, you can get more volume by working on the other 80%.

It’s not just important to work hard and work smart, but also to work smart on the right things.

 

20/60/20 Rule

That brings us to the 20/60/20 Rule. This is a more refined version of the 80/20 rule designed to help save time, money and resources to get better results. Just like the 80/20 there are different variants and versions of it. In most of the variations and examples it basically breaks things down into three categories: Negative, Positive, Middle.

20% Positive: This is group of people understand what you are saying, they agree with your point of view. You don't have to give them a sales pitch, they already get it. This could be a customer who is ready to buy or even an employee who agrees with your new vision. This is a great group, you basically want to leave them alone. If you focus on them, you can risk over communicating. You can also waste time trying to influence or persuade them when they already have it, there isn't anything you need to do.

20% Negative: Before anything is said, before you've even started to communicate or open your mouth, this group is against whatever you want to say or sell. This can be a toxic few or even a vocal minority. The typical responses from people within this group are, "I'm too busy for this", "it will never work", "it doesn't make sense", "this is a waste of time". And no matter what you do, you will never be able to convince this group that your idea is good. You will never convince them that your product/service is great. It is best to completely leave this group alone. If you waste time on this group then all your efforts in persuading this group will be for nothing. It will only have an outcome that will leave you frustrated and lots of wasted effort. That is wasted effort that could have and should have been applied to the next group.

That doesn't mean just completely ignore this group, but the time focused on it should be very limited. This group are often very smart people. Previously they may have been a positive but, over time, their bad experiences made them cynical and negative. They will prey on other people's fears by bringing up past grievances and identifying all the reasons why new ideas just won't work. If we focus too much time on negative, it will suck the energy and rarely makes a difference. Some people believe that if they listen to all the complaining and invest time with them, they will come around and be more positive... however the reality is it rarely makes a difference. For the time spent on turning 1 negative positive, you could have gotten 10 people from the middle moved to positive.

60% Middle, Workable: This is the most important group because it is malleable. There is where you want to apply your focus and can make a difference. This middle group can be influenced one way or the other depending on your interactions with them. This is the group that depending on further communications can grow to become positive or negative. Properly identifying people in this group can be hard but those are the people you want to identify, then spend the majority of the time finding out why they are on the fence. With focused attention and genuine interest, this group should be able to get the majority of the 60% to move over to the positive category.



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