It is fairly obvious that some marketing activities produce more than others. Some of your staff or sales members produce much more than others.
Don’t you wish you could emulate certain activities or people? Well, you can! It takes four steps: (1) identify those people or activities that are most profitable, (2) focus and develop them with most of your time & energy, (3) figure out how to emulate them, and (4) test, test, test.
The area we are going to examine in this article is step one: the THEORY behind identifying those activities and people that are most profitable.
In 1897, an Italian professor of economics, Vilfredo Pareto studied the unequal patterns between the wealthy and the poor. His discovery led to the Pareto’s Principle, which states that 80 percent of results arise from only 20 percent of energy.
In the book, The Breakthrough Principle of 16x, Richard Koch demonstrates the 16x rule with the 80/20 rule. If your big customers give you 80% of your sales, you get a payback factor of 4 by dividing 80 by 20. However, your small customers, may give you 20% of sales with 80% of energy. You divide 20 units of reward with 80 units of effort and you get .25 payback factor.
If you compare the payback factor of the big customer (4) with the payback factor of the small customer (.25) by dividing .25 into 4, you get 16. This means by going after the 20% that provides 80% of the results, rather than the 80% that produces 20% of the results, you are increasing your results by 16x!
I notice this rule with some of my clients. One of my clients is a cosmetic dentist. Let’s say his yearly production is $2,000,000 and the practice’s production is $4,000,000. This dentist is one of five dentists. The cosmetic dentist is only 20% of the producers, yet he provides 80% of the practice’s results.
Richard Koch offers three insights regarding 16x & the 80/20 rule:
- Knowing the best uses of your energy is much more important than trying harder or working longer.
- Most of what you do is a waste of time.
- You can put less energy in, yet get far better results, if you just concentrate on the things that produce fantastic results.
The 80/20 rule is a very interesting phenomenon. Don’t take my word for it, test it yourself!