Connect with us

Entrepreneurs

When to Break the 80-20 Rule

Published

Ah, the good old 80-20 Rule… The saying “Rules were meant to be broken,” certainly applies here. It’s one of those things that can seem like a positive or a negative depending how you look at it. Similar to the, “Is the glass half empty or half full?” question, your view of The 80-20 Rule is all about perspective and making sure yours is aligned with the goals of your business.

Perhaps it’s frustrating that 80 percent of your efforts account for only 20 percent of your bottom line. But, it’s also pretty cool that just 20 percent of your customers and products produce 80 percent of your profits.

It’s all about balance. And, as you find that equilibrium, you need to know when to reconsider The 80-20 Rule:

1. When More Selection is Required

There are times when one size does not fit all. You may provide the best gosh darn spicy mustard the world has ever tasted, but sometimes a spicy mustard isn’t the right mustard choice. There are circumstances when a classic yellow mustard is preferable. Or maybe there’s a recipe that calls for a Dijon mustard…

The point being: There are complexities that require consideration and adjustment on your end. That might manifest in a variance in investment strategies, production process, or product offering. Small tweaks to your 20 percent can result in a major boost in profit.

2. When The Present Does Not Reflect The Future

While a company’s best product and most loyal customers will consistently account for a higher percentage of sales and profits, there are instances when those factors are not reliable in the long run. Sales may drop as necessity decreases and/or newer products/services become available. Competition is always a factor and, during a time when technology constantly and rapidly changes, your current best seller may not always be in high demand.

If you only focus on what’s doing well now, you’re bound to experience adversity in the future. If you rely to heavily on one thing, you inhibit potential growth. There is a simple need to develop and test new products to advance and survive.

Related: Why is Cognitive Dissonance More than a Few Big Words?

Related: Pull Your Head Out of Your A**: 3 Steps for a Successful Business

3. When Expansion Creates Opportunity

Opportunities to expand your market will arise and the investment may not be a part of your current 80 percent. These instances are worth serious consideration—especially when the investment is minor. You may open up the door to a broader 20 percent. For example, babies’ diapers are still the major market segment, but adult diapers are the fastest growing segment. Expanding your offering (this may include accessories, convenience items, or new market segments) can draw in a wider customer base and that is never a bad thing.

One last thing to consider: Diversity Requires Variation

Many markets rely on analysis, which is based around the assumption of a bell curve where the bulk of a population is around a center number and then distributed evenly around that number. For example, the average U.S. adult male is about 5 foot 9 inches and 75% are between 5 feet 4 inches and 6 feet. However, if you start segmenting by age, race, ethnicity, and country of origin the distribution becomes much more complex. The average Danish man is almost 6 feet tall while the average male from India is 5 feet 5 inches. In both cases using an average of 5 foot 9 inches would miss much of the population.

Therefore, it is beneficial to dissect your target consumer and consider multiple offerings based on the possible variations that exist within that group.

In the end, The 80-20 Rule is still a reliable tool in most cases, especially when trying to eliminate excess product or hone in on top buyers. However, as always, exceptions to rules always seem to be where the fun happens—the chance to maximize growth as you reassess opportunities, trends, and market segmentation.

We’d love to hear about your experience improving business performance by adding or reducing offerings.

Continue Reading

Trending