Effective business planning with the 80/20 rule

By | December 17, 2011

There is a lot that goes into a business plan, such as calculating overhead costs, making sure you have public liability coverage and targeting the right market. The 80/20 rule can help you with this last one.

The 80/20 rule simply states that approximately 80 per cent of your business will come from 20 per cent of your customers. Business planners who have learned how to recognise these loyal patrons and identify what qualities and characteristics they possess can then tailor their marketing efforts to finding and drawing in more of them. This will help you make the most out of your time, efforts and business tools. Here’s some advice from ConstructaQuote.com to help you get started.

Your Business Blueprint

Using the 80/20 rule can help you tailor your business plan to earn significantly more profits whilst doing less work. If you follow the rule, you will end up targeting the most valuable kind of customer–the one who buys the most and buys often. You can do this by gathering information about your customers and your sales figures on a regular basis.

How to analyse your data

Once you have all of the paperwork in front of you, analysing your customer and sales data isn’t as difficult as it might sound. Here are several ways to do it:

  • Gross profit. You can use your invoices to find what your overall profit is over a period of time. Then organise the invoices from highest to lowest, concentrating on how much money you made in each sale. This will make it easier to find out which customers are spending the most money at your business.
  • Repeat customers. Next, focus on the invoices belonging to repeat customers, and calculate how much money each of them spent at your business over a specific time period. This will show you who the big spenders are so that you can compare them and find out what common characteristics they have. If you can hone in on a specific kind of customer, you can target them with more efficiency.
  • Best sellers. Focusing on the customer is only part of the picture. Next you can use your data to figure out what they’re buying. Try to pinpoint the products or services that bring in the most of your revenue and those that are popular with your most valuable customers — the 20 per cent — so that you can sell more of them. You may also want to eliminate the products or services that are least profitable.

Drawing conclusions

Once you have your data sorted, you can ask yourself important questions about your current business strategy. For example, are there popular products or services that you can move to the foreground? Have you pushed those products or services to the right kind of customer? And speaking of customers, what can you do to keep your most valuable customers and attract more of them?

This last question will probably correlate to your marketing strategy. Once you figure out what makes your most valuable customers come back to you time and time again, you should incorporate those tactics into your marketing, namely your promotional sales and social media. You can do this by offering specials that target these particular customers and recognise their interests. And in addition to targeting the 20 per cent, you can also think of ways to convert the other 80 per cent of your customers into high-value patrons.

Note from the Editor: This was a guest post.