The rule of 80/20, how does it affect sales?

From a pure 'Sales Function' perspective, the 80/20 rule would mean that 80% of the firm's revenue is generated from 20% of their customer base.

Now unless the company is in a monopolistic market, this situation is bound to have an impact on the profit margins. One long-term sustainable method of circumventing this issue is by increasing the customer base. This can be achieved by either entering into new markets or by launching new product offerings.

Take s/w for example. Most companies have 80% coming from the US, and India generally reported 20-50 % annual increases. On the other hand, 2002 and 2009 have been singulary Annus Horriblus. 2002 was the time when B2B stood for Back to Bangalore, 2 lakh guys came back, companies laid off 20-40   percent of their work force, some did not pay salaries for 8-10 months and finally dissolved selling their project pipelines to others to execute at a price. I dont need to elaborate this year, as all of us are in the same boat.

Most Auto Ancillaries started off as a supply chain to one major, and then diversified e.g. Lumax, Steering companies, brake lining manufacturers etc. to supply parts to others, and also export activities, building expertise, competencies and retaining new management experiences in the process.

Indian Five star hotels were used to screwing their travellers with room rates ruling twice / thrice what I paid in HK / Tokyo with superior facilities and diversified features that enabled a choice for a tourist, a business traveller, or someone who wants a deal for something like a furnished looked after home.  Today, most are challenged to survive as their habits got spoilt, as they never worked strategies to cover 80% of other travellers who have now built loyalties at smaller level chains.

My general advice, retain the 20%, but do study the profile and opportunities within the next 80%.

i personally had pipelines for 1 million USD from Finland from a host of embedded systems companies. No one wanted them mostly around Symbian technologies, today I dont have them, and those companies dont want to work with Indians anymore.  There were companies from Korea with Medical Systems and opportunities for companies to do work for them to improve capabilities, again an un-addressed segment. These are personal failures that one cant even report in a resume - I have showcased this here just to highlight what and where such opportunities had they been taken could not done for many companies cutting 30% salaries ...

Makes my blood boil and feel like swinging a cricket bat and thunking idiot organization heads that look for business but spit at these opportunities, but somehow someone above swings a bigger cricket bat and bashes up the US marlet :-).

Message: Times are bad - don't ignore the 80% segment one has not tapped, management lessons come from experiences ... and experiences include pain !

The idea has a rule-of-thumb application in many places, but it is commonly misused. E.g., it is a misuse to state that a solution to a problem "fits the 80-20 rule" just because it fits 80% of the cases; it must be implied that this solution requires only 20% of the resources needed to solve all cases.

The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy was received by 20% of the Italian population

20% sales techniques / processes generate 80% of revenue for the businesses.

In other way if we look in to Hospitality and retail sector –

20% of your menu items will give you 80% of your sales, and 80% of it will give you 20% of your sales. Time to look closely at the best and worst sellers on your list, and adjust accordingly.

If you're involved in retail:
* 20% of the items in a shop generate 80% of the sales, and conversely 80% of the items generate only 20% of sales. For a supermarket carrying 20,000 items this means they could remove 1000 items and their sales would hardly decrease at all!

Every where we can apply this principle ---------

Application :  1) Total Quality Control and Six sigma

2) In computer science 90% of the execution time of a computer program is spent executing 10% of the code.

3)  Daily reminder focus on 80% of your time on most important thing and reduce wastage of our time on unimportant thing  and prioritize our work .

Work smart and in a smartest way

The 80/20 Rule may not always work for you

When it comes to skill building, be careful. It might take 2 years to become 80% proficient but in order to get that last 20% of skill you need to invest another 8 years. (Medical Doctors are a good example of this.)

Be honest with yourself - if you absolutely need to be 100% proficient, focus all your energy to get that last 20%. Otherwise, move on.