Business Growth Strategy: How To Use Pareto Analysis To Focus Efforts On Growth?

February 6th, 2009 Posted in Business Growth

This week I am working with a client who is drowning in success because of a well-implemented business growth strategy. He has been working on his business for two years (following four years work in his business). His sales are taking off and his team is rushed off their feet, stressed and heading for burnout.

So my task is to coach the team to perform better, to survive and ultimately to thrive on their success.

What is the 80/20 rule?

I explained to the team that commonly 80% of results are produced by 20% of causes. Applied to sales revenue, this idea gives you plenty of levers with which to control and manage your situation:

Observation 1: 80% sales come from 20% customers.

Printing out the cumulative sales ledger by value enabled us to identify the important customers. We will focus our sales effort on these few, important businesses.
Interestingly they tend to buy single product types at present, so cross-selling several products to them will immediately boost sales revenues while reducing the team’s invoicing task.

Observation 2: 80% profits come from 20% products.

Tracking the actual profitability of products enables us to raise the prices on strong products and only offer discounts on the weak products.

We will bundle two or three ‘low profit’ products that complement a high profit product.

We are prioritising the production schedule, inventory investments and delivery dates to favour high-profit products and we might discontinue some low-profit products.

Observation 3: 80% costs come from 20% activities.

We plan to manage only the high-cost activities. For instance, some high cost materials will only be processed ‘just in time’ for their assembly and finishing activities.

Cross-training the staff will build flexibility into these sensitive activities.

How do you focus your best efforts?

Understanding the 80/20 rule helps to unravel the averages and aggregations in your business to expose the insights that will help you grow. How can you reduce 80% of your wastage and invest into extra sales growth?

Following this idea, my client plans to review his business annually, then his team will avoid burn-out as they grow the business.

Best of luck with your business growth strategy and strategies!

Adrian Pepper coaches people through business and personal difficulties.

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