Today I'm doing a book review on The 80 20 Principle, The Secret to Achieving More With Less by Richard Koch.
I picked up this book on the advice of Tim Ferriss (the guy who wrote The Four Hour Workweek), and it is an absolutely amazing book.
It's an absolute must read for every business owner, every manager, everybody,
You don’t have to be in business to read this book.
Whoever reads this book, it will impact your life like you cannot believe.
The 80/20 Story
So, the story is: Italian Economist named Vilfredo Pareto, lived in Italy from 1848 to 1923.
In 1897, about 100 years ago, he saw patterns in stats and numbers. He saw that say 20% of the population eat 80% of the food. And saw similar patterns in the distribution of wealth and land in Italy. He notices that 205 of the people controlled 80% of the land!
Pareto Principle Examples:
I'm going to give you some examples today on how it applies to your business, and how it can save you countless, light years of work and headache. And how you can improve your processes, your costs, your sales and everything.
Ok, I'll just dig right into it.
80/20 principle with life and daily activities
20% of your tasks and the stuff that you do, create 80% of the results.
So for time management, your job would be to track where your time is spent and which tasks create 80% of the results.
And if you're focusing most of your time on tasks that don't create the results that you're after, whether it is sale, whether its completion of a product, whatever it is that you're trying to do, if it's not happening, chances are your time is going into a wrong activity, so identify and change it.
Customers and 80-20
20 percent of your customers give you 80 percent of your sales.
You will notice that 50-60% of your clients that are at the bottom of the list, give you less than 10% of your sales.
Two things you could do to improve and optimize your sales:
1- Fire the bottom half of customers and still make almost the same amount of money or almost 90% of your existing sales
2- Upsell them and work on them to bring them up to the top 20%
Products and 80-20
20% of your products or services that you offer, bring in 80% of your sales.
Your job will be to identify which products or services give you 80% of your sales, and then focus and refocus your resources on the top performing products or in the top 50%.
You will see massive results and a massive difference when you do this.
80-20 with Staff and team members
80 percent of sales come from 20 percent of the sales team.
If you have 10 salespeople, chances are two or three of your team members do way more than 80 percent of the work. Your job would be to identify and train the bottom salespeople and try to bring them up to speed or fire them.
When you fire the bottom salespeople, you can free up the cash that you're paying them, and reinvest it on the people at the top.
Or, save that money or reinvest and reallocate that money on marketing and advertising to bring more people in.
80-20 for Inventory
When it comes to inventory, you will notice that 80% of the products that you're selling account for only 20% of your sales. These products take extra inventory space in your warehouse.
If you want to free up some warehouse space, or if you want to reduce your warehousing costs, find out the bottom 30-40% of your products and get rid of that stock.
You're going to save yourself some warehousing costs. You can also restock more of the top 20- 30%, that sells more quickly account for 80 percent of the sales.
80/20 and Software
This is something that we actually applied to our own software, WP Spell Check.
It is a WordPress Proofreading plugin.
Now in software, memory and time determine the speed and the capacity of the software.
Our software scans your WordPress website for spelling errors, grammar errors, SEO Empty Fields, Broken Shortcodes, and broken HTML code.
It scans the Entire WordPress website and gives you a list of all the spelling errors, all the pages with broken code on it, pages with grammar errors, and more.
The capacity of our WordPress plugin was 20,000 pages; it would scan 20,000 pages in under nine minutes.
To improve our software, we set up some debugging code to track the time and memory inside each scanning function. Our spellcheck function has 32 sub-functions.
We track the activity of each of these functions, and sure enough, two or three functions take 80 % of the time.
Applying the 80 20 rule is a nested process
There are also sub-functions inside those functions, and they're all nested. The 8020 rule can be applied to multiple nested sets of data.
Let's say we have a function called page scan; page scan took a bunch of time.
We went in there, and there are a bunch of things that are happening inside that function like loading the content, ignoring certain things, add in certain things, cleaning up the code etc.
If there were 10 things to do, sure enough, two or three of them take most of the time.
We fixed those two or three, and the speed improved by 80%.
Memory usage was reduced by 80%.
Once we apply the 8020 rule across our software, the memory and time usage came down by 80%.
After we were done in a couple of days, our software can now scan 80,000 pages in one minute 45 seconds.
So it used to be 20,000 pages in nine minutes; now it's 80,000 pages in 1 minute 45 secs.
The 80 20 Principle is extremely useful.
80-20 of Marketing
20% of your marketing activities produce 80% of your results.
Online Marketing (80/20 example)
Let's talk about AdWords; 20% of your keywords produce 80% of your results.
20% of the keywords give you 80% of your conversions.
Your job would be to stop/pause the keywords that are getting impressions, but no clicks, and reallocate the budget to the ones that are actually getting clicks.
Google prefers that; they don't want you to waste their advertising space.
You will get a better Click Through Rate (CTR), lower CPC and better conversion rates.
Offline Marketing 80/20 exmaple
20% of your offline campaigns produce 80% of your results.
for example, if you're advertising among multiple bus routes in the city, 20% of those buses create 80% percent of your results and impressions. Find out which bus is delivering the best result by allocating a tracking phone number to each one through Call Tracking Metrics.
I cannot emphasize how extremely powerful this book and this concept is. The 8020 Principle by Richard Kock
Pick it up today, read it and start applying it. Very, very, very powerful.
It has changed my life changed my business.
I've been coaching the 80/20 concept to my clients and they have been getting massive results.
How to Apply the 80/20 Rule?
I actually run a course on the 80/20 rule where I walk through practical examples of the 80/20 principle. I also share my 80-20 Excel Sheet Template where we have programmed the cells to show you the 80/20 analyses. You only have to copy/paste your data in there.
In this post, I shared the concept and a few practical examples of the 80/20 rule, but in our course, we dig deeper on how to actually apply the 80/20 to my business and make it work.
If so, if you were interested, Click Here to register for the course and start applying it right away.
This course will show you how to apply the 80-20 Principle and identify:
- What's working in your business?
- What is not working in your business?
- What is important?
- What is not important?
and reallocate your resources and time, optimize your processes and create real results.
If you're looking for a business shortcut to massive results, this is it.
I don't focus on shortcuts in business and in life, but if there is one good shortcut, this is it.
Once you read the book and attend our course, you’ll realize and understand that the universe is not in a 50/50 balance.
It's more of an 80/20 ratio
It's more of a 10/90 ratio or 1/99 type of ratio.
Your job would be to identify that and use it to your advantage.
That is exactly why some companies go to a million dollars in a year, and some companies never make it past 100 grand.
Very, very, very powerful.
In conclusion, I cannot emphasize enough how important this book is.
In my next blog post, I'm going to do a review on the book called Essentialism: The Disciplined Pursuit of Less, which in combination with The 80-20 rule, has done a lot of miracles for me and for a lot of people around me.
I hope that you could learn and benefit from this super powerful principle.
PS: Click here to purchase the book on Amazon and read it on Kindle or order the book.
I think I bought I bought the book on Amazon and it worked for me.
To your Massive Success
Your business and Marketing coach