Back in the 19th Century, economist and sociologist, Vilfredo Pareto, developed a mathematical proof for something he called "The Law of the Unequal Distribution of Results.% If you know it at all today, you know it as Pareto's Law or the 80/20 Principle.
The law or the principle, whatever you call it, says that some of the things that you do, some of the customers you have and some of the opportunities you face, give you much more "bang for your buck.% Some of your activities have great big payoffs. Other don't have as much. One of the arts of success is taking care of those that have the biggest impact.
For an example of how this works, take Heartland Trucking. They have hundreds of customers, but their twenty-five biggest clients account for almost 70% of their business. Their single largest client, Sears, gives them 16% of their business all by themselves.
To make Pareto's Law work for you, you must learn two things. Learn to identify the important things; and, learn how to concentrate on them.
Ranked lists help you identify important things. Instead of printing out a list of your customers in alphabetical order, or in order of most-recent transaction, try a printout that lists your customers in order of revenue or in order of profit.
You'll find a small number of customers at the top of your list give you a huge percentage of the business. Youâll find the same kind of thing if you make a list of your salespeople by revenue or profit generated, or your customers by the number of complaints. Let's use those newly identified great customers for an example of what to do with this information.
Once you've identified the customers that are most important for you, make a special effort to treat them well. Remember that it costs you about five more to get a new customer, compared to retaining an old customer. Work on those great, old customers. Keep them. Increase their lifetime value.
Next, see if you can draw up a profile of the folks who are already great customers to help you figure out how you can find more just like them. Develop products and services that your best customers can use.
Pareto's Law is one of the single-most powerful things you can make use of in business. All you have to do is use ranked lists to identify the most important stuff, and then develop strategies to deal with what you find.
Created/Revised/Reviewed: 30 July 2002
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