Pareto Principle: How To Use It To Dramatically Grow Your Business

Jan 20 2014, 9:24am CST | by

Pareto Principle: How To Use It To Dramatically Grow Your Business

The Pareto Principle is very simple, yet very important. It is named after Italian economist Vilfredo Pareto, who, in 1906, found that 80% of the land in Italy was owned by 20% of the population.

What was most important about Pareto’s finding was that this 80/20 distribution occurs extremely frequently. For example, in general, 20% of your customers represent 80% of your sales. And 20% of your time produces 80% of your results. And so on.

The Pareto Principle, or “80/20 Rule” as it is frequently called today, is an incredible tool for growing your business. For instance, if you can figure out which 20% of your time produces 80% of your business’ results, you can spend more time on those activities and less time on others. Likewise, by identifying the characteristics of the top 20% of your customers (who represent 80% of your sales), you can find more customers like them and dramatically grow your sales and profits.

Now while the Pareto Principle or 80/20 Rule has been used by savvy business owners and executives for years, a recent and unique interpretation of the principle has taken its importance and power to a whole new level. I learned about this innovative interpretation in Perry Marshall’s incredible new book, “80/20 Sales and Marketing.”

Here’s how Perry Marshall has taken the Pareto Principle to the next level. He found that the Pareto Principle is exponential! Let me explain. We already know that 20% of your customers represent 80% of your revenues. What Marshall found is that, within that initial 20%, the 80/20 rule also exists. Meaning that the top 20% of the top 20% of your customers (or the top 4% overall) represent 64% of your sales (calculated as 80% times 80%).

Now you have a distribution in which the top 4% of your customers account for 64% of your sales. So you can find more customers like them. And importantly, the Pareto Principle scales to the third power, and fourth power, and so on when the numbers are great enough.

Importantly Perry Marshall’s “80/20 Sales and Marketing” succinctly explains the exponential power of the Pareto Principle, and then focuses on ways to apply it to your business to quickly grow sales and profits. For example, he teaches his “rack the shotgun” technique for quickly identifying potential customers who are ‘top 20%-ers’. He explains how to use the principle to get customers to call you (and never have to cold call again). He shows how to use the 80/20 rule to hire the absolute best talent. And perhaps most importantly, he explains how to use the rule to generate the maximum value and profits from your customers.

The Pareto Principle or 80/20 rule is an extremely powerful tool, when properly applied, for growing any business. The key is knowing how and when to apply it, and leveraging its exponential properties. Perry Marshall does an outstanding job in his book of providing clear examples and action steps for businesses to reap great profits. Perhaps most interestingly, Marshall is currently selling “80/20 Sales and Marketing” for only 1 penny on his website. As the master user of the Pareto Principle, I’m assuming he’s using this unique technique to identify the top 20% of the top 20% of business owners and executives. That’s powerful.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Odyne Systems, LLC Partners with Allison Transmission’s Midwest Distributor, Inland Power, to Deliver on $45.4 Million Contract
Odyne Systems, LLC Partners with Allison Transmission’s Midwest Distributor, Inland Power, to Deliver on $45.4 Million Contract
Department of Energy Program Administered Through the Electric Power Research Institute to Apply Over 120 Odyne Plug-In Hybrid Systems to Trucks Throughout North America
 
 
Cleared Of Fraud Against SMEs, RBS Eases Rules For Distressed Businesses
Last week, The Royal Bank of Scotland Group was cleared by law firm Clifford Chance over allegations that the U.K.-based banking group deliberately put failing small and medium enterprise customers out of business to...
 
 
Cost Savings Are Allowing Colgate To Invest Back In Building Brands And Products
In the past several quarters, balancing the business mix between developed and emerging markets has helped Colgate-Palmolive to achieve above market growth and experience only a moderate impact on net sales from...
 
 
Shift In Agricultural Sales Timing, Lower Chemical Prices Weigh On DuPont's Earnings Growth
DuPont reported modest earnings growth for the first quarter due to lower agricultural sales volume and continuing pricing pressures in the chemicals segment. The company’s adjusted diluted earnings per share of $1.58...
 
 
 

Latest from the Network

Apple's Sales Figures Prove A Sad Fact: There's Still No PC As Desirable As A Mac
Mac sales make up just a tenth of Apple's revenue, but they’ve received a significant amount of attention following the company’s quarterly report yesterday, both from analysts and from the CEO Tim Cook himself. Cook’s...
Read more on Apple Balla
 
Apple's Analysts Almost Universally Positive On The March Quarter Results
Apple’s shares are up over $40 today driven by its very solid March quarter results and better than expected guidance for the June quarter. I have summarized over a dozen sell-side notes below and many analysts have...
Read more on Apple Balla
 
Odyne Systems, LLC Partners with Allison Transmission’s Midwest Distributor, Inland Power, to Deliver on $45.4 Million Contract
Waukesha, WI, April 24, 2014 --(PR.com)-- Odyne Systems of Waukesha and Inland Power Group of Butler, Wisconsin have teamed up to deliver on a $45.4 million contract from the Department of Energy, administered through...
Read more on Politics Balla
 
Odyne Systems, LLC Partners with Allison Transmission’s Midwest Distributor, Inland Power, to Deliver on $45.4 Million Contract
Waukesha, WI, April 24, 2014 --(PR.com)-- Odyne Systems of Waukesha and Inland Power Group of Butler, Wisconsin have teamed up to deliver on a $45.4 million contract from the Department of Energy, administered through...
Read more on Business Balla
 
Cleared Of Fraud Against SMEs, RBS Eases Rules For Distressed Businesses
Last week, The Royal Bank of Scotland Group was cleared by law firm Clifford Chance over allegations that the U.K.-based banking group deliberately put failing small and medium enterprise customers out of business to...
Read more on Business Balla
 
Cost Savings Are Allowing Colgate To Invest Back In Building Brands And Products
In the past several quarters, balancing the business mix between developed and emerging markets has helped Colgate-Palmolive to achieve above market growth and experience only a moderate impact on net sales from...
Read more on Business Balla
 
Shift In Agricultural Sales Timing, Lower Chemical Prices Weigh On DuPont's Earnings Growth
DuPont reported modest earnings growth for the first quarter due to lower agricultural sales volume and continuing pricing pressures in the chemicals segment. The company’s adjusted diluted earnings per share of $1.58...
Read more on Business Balla
 
Google's Glass Explorer Program Was A Social Experiment That Backfired
Google Glass was launched without any clear explanation of what it was supposed to be used for. When promotional videos started to show people going about their daily routine, it quickly became clear that what we were...
Read more on Business Balla
 
America's 100 Best Corporate Citizens in 2014
America’s 10 Best Corporate Citizens In 2014 In December Bristol-Myers Squibb joined the Medicines Patent Pool, an international organization in Geneva, Switzerland, that makes drugs available at low cost to people...
Read more on Business Balla
 
Talent Knows No Limits
Last month I had the pleasure of attending Cirque Du Soleil’s Michael Jackson tribute The Immortal World Tour. To say the performance was out of this world would be an understatement. If you’ve ever seen a Cirque show...
Read more on Business Balla
 
 
Auto Balla Sexy Balla Sport Balla TV Balla Politics Balla Movie Balla Apple Balla Business Balla Ad Balla Celebrity Balla