|I am spending the majority of 2021 re-reading my top recommended books from the past three years. One of them is 80-20 Manager where the main theme and its implication drives much of my thinking, writing, speaking, and coaching.|
Here is an excerpt I recommend you share with your leadership teams:
The assumption that all sales are good leads to profitless growth.
Unwary managers attach roughly the same importance to new, disaffected and/or complaining customers—who buy little, demand unfeasibly low prices, and demoralize staff and other customers—as they do to loyal, long-standing and enthusiastic customers who pay the full whack, recommend products to friends, and improve the morale of the company’s best employees.
So why do otherwise good managers make these mistakes? Because they think the world is 50/50. They think that results flow from causes in a linear and roughly equal way. They think that all revenues lead to profits. They think in averages. They don’t understand that the world is really 80/20.
One customer is not as good as another. One business segment or product is not as good as another. One dollar of sales is not worth as much as the next dollar.
That’s right! One-fifth of your customers are very likely responsible for four-fifths of your company value. This also applies to your products and probably your team members as well. Here is the math:Here is the math that applies to most businesses:
For a business that generates $1,000,000 in profit and has one hundred customers, twenty of those customers drive about $800,000 in profit – ~$40,000 each – versus ~$2500 for the other eighty.Calculation: 40,000/2500 = 16
Where else in your business can you get an ROI difference of 16:1?
These vital few principles are our guides to taking the guesswork out of growth.
Please note that this so-called Power Law, also known as the Pareto Principle, applies to almost every aspect of our lives and likely has since the dawn of man.
Here are some fun facts:
– 20 percent of professional athletes will scoop 80 percent—or more—of the competition prizes.
– You will wear 20 percent—or less—of your clothes more than 80 percent of the time.
– A mere 20 percent of burglars will make off with more than 80 percent of the loot.
– Just 20 percent of your car journeys will clock up more than 80 percent of your total mileage.
– Only 20 percent of your time will generate more than 80 percent of your useful results.
– 20 percent of the cities in England contain 80 percent of the population.
– And 20 percent of your decisions will lead to more than 80 percent of your success and happiness—or the opposite.
For me, 80 percent of the views of my website last year were from 4 out of 125 pages. That is 3.2% of all pages viewed.
My advice stands. Fire yourself from the day to day to spend more time figuring out those few things that truly matter to your business, as they matter tremendously.
Ask your team to investigate the following:
Which of our customers and products are super profitable and what makes them different from the rest?
Here is one way to help you get started.
Bill – Certified Growth Coach, Foundations in NeuroLeadership certified, PI Certified Partner, MG100 member coach
(firstname.lastname@example.org; www.catalystgrowthadvisors.com)For MA companies ONLY, as an approved Training and Development provider, Catalyst Growth Advisors can offer up to 50% off program fees. Click here to see if you qualify.
Please click here to download or purchase my book Further, Faster – The Vital Few Steps that Take the Guesswork out of Growth.