The 80/20 Rule for Profitable Growth
Adapted from Mindshop's "How to Steer Clients Towards Profitable Growth Rather Than Growth for Growth's Sake" article by Chris Mason.
A mistake I often see made by clients is targeting growth simply for the sake of growth itself. In my mind growth is not about the top line of a business but the bottom line! I prefer to use the term ‘profitable growth’.
Most leaders know about the Pareto Principle, also known as the 80/20 rule, that states that 80% of the consequences come from 20% of the causes. Using the Pareto Principle on three business pillars and three growth factors, you can determine where the greatest growth, profit, and problems are. Once you know this you can focus your energies on the greatest opportunities to achieve the best profitable growth.
Take these three pillars:
And Pareto them for these three factors:
Let’s try it with customers. The fact is that 20% of customers give around 80% of growth. Do you know who your customers are and what they buy? Which 20% of the client’s customers account for 80% of the profit? The third Pareto is to look at which 20% of customers give 80% of the problems. Too often business owners invest resources in keeping the squeaky wheels of their customer base well-oiled rather than focusing on the customers who furnish growth and profit.
Simply by conducting a customer Pareto analysis we can identify improvements for how to attract and retain customers.
We can do the same with your products and services. Which 20% of the products and services create 80% of the growth? Which 20% of the products and services create 80% of the profit? Which 20% of products and services account for 80% of problems? As we found with the Pareto analysis of customers, there are significant opportunities in reviewing products and services.
The third Pareto analysis I recommend is to look at your people. Which 20% of the people create 80% of the growth? Which 20% of people give 80% of the profit? Which 20% of the people give us 80% of the problems? How can you use this information to encourage and reward those staff that are contributing to profitable growth? Is there someone that needs more training to help contribute to growth and profit? Is there a person on your team that creates more problems than benefits?
The results from a Pareto analysis can help you determine where to put your energy to get the maximum amount of profitable results in your business.
Not sure you can do this on your own? Every day I help clients look more closely at their business and make the adjustments they need for true success. Call or email me to start the conversation about uncovering your profitable growth.