Sales forecasts can be stressful to say the least. But what if we told you that you could be focusing on less and achieving more? We've heard many theories over the best way to manage sales forecasts - some can be helpful, others not so much. Here at ShiftNote, we believe in Pareto's Principle - also known as the 80/20 rule. Trust us, this rule can be seen everywhere in a business. In fact, it's so prominent that it can and will help managers focus on the most important contributor to success (profits, of course)!
80/20 Rule Explained
Have you ever heard that the richest 20% of the world's population controls about 80% of the world's income? Or that 20% of your activities account for 80% of your results? No matter what it is applied to, this rule explains that 80% of the effects come from 20% of the causes.
History lesson time - this rule was founded by Italian economist, Vilfredo Pareto. He noticed that 80% of Italy's land was owned by 20% of the population. After going on to research other countries, he discovered the same thing was occurring almost everywhere.
In fact, this simple 80/20 rule seems to be popping up everywhere in all industries.
So lucky you - this rule means that 80% of sales come from only 20% of customers! For obvious reasons, many managers and owners use this rule as a tool in sales strategies to maximize business efficiency and dramatically increase sales.
Your brain is probably buzzing thinking of how the 80/20 rule is affecting your business today. Don't stress, we've gathered a few big examples so you can truly see how this rule impacts your company's sales.
- 20% of inventory accounts for 80% cost of goods sold. It's so common for managers to focus on getting the cheapest price for their goods needed. Picture this: a manager spends an endless amount of time performing a cost analysis on major items to find the most affordable vendor available. Sounds okay, right? WRONG. This same manager might not even be looking at the use of these goods in the business or by other staff (please, always hire the right managers for the job). So getting the best deal ISN'T the most important thing. Cough cough, 80/20 rule in action.
Try it: Perform a full cost analysis on all inventory that's used in your operation. Break down how it compares to the sale of items. You'll find that 20% of inventory accounts for 80% cost of goods sold.
Focus on getting the best price for that specific 20% without sacrificing quality to ensure you're making the most profit.
- 20% of items sold account for 80% of profits. Same idea as the rule above. We bet there are certain items you sell that are by far your most popular. These items account for 80% of your company's profits. Seriously, whether it's a popular dish on your menu or a best selling brand at your store, these items heavily contribute to sales.
You know how it goes: During extended slow sales periods managers get antsy and want to add new items and make lots of changes to try to bring the traffic back. We're the first to say that being inventive is great, BUT you don't want your popular best sellers getting lost in a sea of new things.
Keep your most popular items prominent, after all, they're the reason customers
keep coming back.
- 20% of staff accounts for 80% of sales. Every business has a group of sales people that perform exceptionally well. Guess what? These top 20% of sales personnel are making 80% of your sales.
So what does this mean for you? Help your sales staff have more opportunity to grow, develop, and thrive in your business. LISTEN to the hours they want to work. Tailoring your employee scheduling to your staff's schedule needs will ensure happy and productive employees. Being a great manager also involves providing flexibility in scheduling as needed. Lastly, encourage employees to provide feedback and ideas on how to improve. Actually listen to them and apply wherever possible. These actions will lower turnover and increase employee efficiency by showing that you care for your staff and want them to succeed.
Give your employees opportunities to thrive, listen to their scheduling needs, be flexible, and get them involved with the business. Communication is key for success.
- 20% of personal development accounts for 80% of retention. Turnover. It's every manager's worst nightmare. When turnover is high, it's like throwing thousands of dollars in the trash every year. I mean seriously, that hurts. How do you combat it? Start investing in professional development training and resource opportunities. Personal development investments kick turnover to the curb.
ShiftNote Tips: Hold regular training sessions for your staff to see steady improvements and give your staff the opportunity to learn from each other whenever possible. Also remember, everyone has bad days. So if a staff member ends up causing an unhappy customer, try to look at the situation with understanding instead of immediate blame (and of course, appease the customer too). Showing care for employees is one of the best things a manager can do to build a healthy and booming business. Lastly, increase overall employee motivation with things like sales games and other incentives to reward excellent work. All of these actions act to support your employees and reduce the nightmare of turnover. In return, your company's sales will grow.
Always encourage and provide learning, be understanding and show care for your employees, set up sales games and other contests to reward great work and increase motivation.
Happy employees = more sales = happy management.
If you learn nothing else from this blog, at least understand that this rule is about quality, not quantity. It's about learning how to use your time and resources more efficiently as a manager to achieve big results. Seriously, work doesn't have to be so consuming every day. Focus on bettering the 20% of important activities and you'll be on the path to increased sales, no doubt.