One of my favorite business books of all time is The 80/20 Principle by Richard Koch. The basic message of the book is that in many places in life and in business, there is “an inbuilt imbalance between causes and results, inputs and outputs, and effort and reward”.
Oftentimes that imbalance shows up as 80% of results come from 20% of effort, 80% of outputs result from 20% of inputs, etc.
If you are trying to improve profitability in your company, the 80/20 principle can help you do it really fast. Two areas that can benefit quickly are “what you sell” and “how you sell it”.
Consider doing the following:
- Reduce the resources directed at the 80% of products that produce 20% of the sales and profits… and move them to the 20% of products that generate 80% of the sales and products.
- Reduce the resources directed at the 80% of marketing activities that produce 20% of the results… and move them to the 20% of marketing activities that produce 80% of the results.
This is a slightly modified version of the most powerful method of all for improving your profitability quickly – stop doing things that lose money.
The 80/20 principle is a powerful tool for improving the financial health of your business. Give it a try and see if it delivers improved profitability and cash flow in your business
NOTE: You can grab a copy of my newest book at Amazon.
A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.
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