Modern Day Application Of Pareto's 80/20 Principle In Business Software Saves Businesses

Let's start off by defining Pareto's theory on income distribution before we explore how it relates to online business software

Way back in the 1800's there was this clever little economist by the name of Vilfredo Pareto. He claimed that in society 80% of the wealth is controlled by just 20% of the population. He used this mathematical formula to show that this uneven wealth distribution is not random but that it follows the exact same pattern throughout history, across different cultures and various economical structures.

But it doesn't end there Pareto's law or the 80/20 principle can be seen in a number of other arenas. For example in his garden Pareto noticed that 80% of his peas were produced by only 20% of the plants. Most people wear 20% of their clothing 80% of the time. And finally in business you'll find that 80% of your income comes from just 20% of your customers.

Take a moment to think about this point. If 80% of your revenue comes from just 20% of your clients what would happen if you lost even a few of those high level clients?

In fact in many businesses this formula is skewed further, 90/10 or even 90/5. Meaning that the revenue, essentially the foundation of your business, could be built on a few select clients. Do you know who the high value clients are in your organisation? And if you knew exactly who they were, would you take steps to look after them better?

This is where online business software comes in. By using an integrated database solution you can identify who your high value clients are in a matter of minutes. This gives you the chance to show them a little extra love. Invite them to events, give them special exclusive offers and any other small personal touches you can think of to enhance your relationship.

I once had a guy who sold top quality antique furniture he imported from Europe. For his very best clients he held events where his highest value customers could come, sip champagne and view the new shipment before anyone else even got the chance to bid on the items. These clients got first choice, they also got to network with other furniture collectors and in the end it was a nice night out. He sold a lot of furniture at these events but it was more than that. It created an experience for his clients, cementing their relationship with his company and making these customers very difficult for the competition to poach.

If you have the right business software you can easily determine which 20% of clients are providing 80% of your income. What you'll need is an online business software that includes customer relationship management and accounting. With business software like this you can run reports that identify which clients over a defined period of time 3,6 or 12 month period have made the most valuable orders or have done the most repeat transactions.

Once you have this list you can use your integrated business software to schedule client contact. You could use these contact points to increase average spend (thereby increasing profits) or determine if they have any friends who might be interested in your product. Here is one simple example; you might ask one of your staff to give them a courtesy call, ask how they enjoy the product and if there is anything else you can do for them. These types of calls often result in additional orders in many industries Or you could suggest they go on automatic ordering system and receive a 5% discount. If they are ordering every month anyway it will save them time and effort. You won't have to manually process orders any more either, so everybody wins.

Every business is different and what will be right for your client base will vary. But remember the 80/20 rule says that 80% of your income comes from just 20% of your clients. Treat these clients like solid gold. Because if you lose them, you lose your business.