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Using The 80-20 Rule To Benefit Your Business NOW!

The Pareto Principle asserts that only a “vital few” peapods produce the majority of peas. The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

Our Own Story

For the first 10 years as a small business owner in the digital marketing industry in Singapore, I ignored the Pareto Principle and basically took up any clients I could lay my hands on.

There were periods of time when I worked 16 hours a day.

During the day, I was handling my staff to facilitate them in their work and taking client’s phone calls, going for sales or project meetings.

This went on for an extended period of time and I was busy – hell busy.

On the surface, it looks like my company was “growing” – hey after all the entire team was always busy as bees and we were constantly hiring. Isn’t this growth?

From time to time, I experienced cash flow problems when clients didn’t pay me on time and I had to pay the rental, employee wages and other business costs (there was hell lots of hidden costs that I had never thought about).

Luckily for me, I had a friend whom I regard till today as my mentor. He was a self-made millionaire and worked his way up despite coming from a humble background.

“Use the 80/20 rule to your advantage,” he said.

The simple but powerful idea is this:

80% of your profits (be careful NOT to confuse this with revenue) comes from 20% of your client.

The even more powerful idea is this:

80% of your effort is also used to serve the 80% of your clients who are not giving you enough profits but taking MOST of your time.

Anyone who is clear-headed (I wasn’t then as I was too busy working in the business) will come to the conclusions below quickly:

  • Focus on the 20% of your top clients who contribute most to your profits and drop the other 80% (over time).
  • Determine the profile and needs of this 20% top yielding clients and make a deliberate effort to acquire more of them
  • Do not take clients who require a lot of your time and effort with no significant profits in return.
  • Direct all your operational efforts into making your best clients happy and upsell them
  • Direct all your marketing efforts into getting more of your ideal clients.

Within some 18 months, I was running a small team in Singapore (with several more in the Philippines) serving a lesser number of clients in total but making way more (a decent 5 figure income per month).

And to top it all – I was working 4 hours a day.

To be honest, I am nowhere making a millionaire per year but I am very comfortable with my life. I am not overworked and I get to spend more time with my family and in the last 2 years, I was travelling and working for 18 months in Asia.