80/20 Your Business Part 1

I am a geat believer in staying focussed. I don't always do it
but I do believe that a focussed business is a successful business. Companies that concentrate on their strengths generally are more profitable.

Unfortunately the day to day distractions and pressure of running a business can cloud your vision and take you farther away from these strengths. I don't know how many times my advertising agency has been asked to perform tasks that are not our strong suite, and we have accepted the challenge. It's hard because you don't want to let customers down, and we all like the opportunity for extra income.

Conventional wisdom is that all business is good business. Never knock back the opportunity for extra sales. I disagree and apply the unconventional wisdom that not all business is necessarily good for my agency. This is why I apply the 80/20 Rule to the agency on a regular basis.

The 80/20 Rule (Pareto's Law)
In business as in life, the Italian economist Pareto learned that 80% of results come from 20% of sources. Most businesses will find that 80%+ of their income is generated by 20% of customers. In a sales team 80% of sales will come from 20% of sales people. 80% of a company's profit usually comes from 20% of the products or services it offers. 80% of the profits in stock portfolios generally come from 20% of the stocks. I believe that the 80/20 rule can be applied to most aspects in life for greater effect. Knowing which 20% to concentrate on is a huge advantage.

I have taken this principal and applied it to the agency with great effect.

Firstly I ranked all of the agency's clients in order of annual billings. We have roughly 30 clients active at any one time. What I quickly learnt was that 6 clients (20%) represent 84% of our turnover.

Secondly I studied the different functions of the agency. A full service ad agency such as ours undertakes a large range of services. Media placement, media production, art/graphic design, PR, web design, printing, brand analysis and more. It turns out that just two of our functions, media placment and media production, account for more than 80% of our revenues.

Understanding where our strengths were I can confidently guide my team to focus on those strengths. I immediately divided the clients up between myself and my account manager. I would look after the top 6 clients only, she would look after the rest. Suddenly instead of me having to worry about all of our clients, I only had to concern myself with 6. Thats slightly more than one phone call per day.

My account manager has 24 clients on her list, however I now urge her to concentrate 80% of her service time on the top 20% of that list as they represent approximately 80% of the remaining revenue. Some of them are new up and coming clients who could eventually be on our Top 20% list and therefore deserve the attention.

Comments

[x3r0bug]

80/20 rule.. hmmm, I've never heard of that, but it is very interesting. I plan on starting my own business one day, and that is VERY useful knowledge to have. I just hope I can find out which of the 20% to focus on, as you said.

I like how you have everything under control and are applying things such as this to your business. You must be very successful with this business that you are running, it sounds like it's doing great!