The 80/20 Rule

When we plotted our propane sales on an Excel spreadsheet a few years ago, we were very surprised at what we discovered: 85% of our business was home heating and 15% was everything else. The "everything else" included temporary construction heat, a small amount of forklift cylinder delivery, some single small appliance use (stove or dryer) and various other applications. It was Pareto's 80/20 Rule almost to the letter.

It became obvious that our home heating accounts were our ideal customers. A very small segment of our business activity was taking more than 80% of our time and resources. When I mentioned this revelation to the delivery guys, they were already aware of it. (I guess I was destined for management.)

We decided to concentrate on the 85% that yielded the best return and began to eliminate the 15%. When we started in this new direction, the other people in the office thought I was crazy. And for a time, I thought they might be right.

Several things happened as a result. Our labor costs dropped because we were no longer getting phone orders at the last minute for temporary heating deliveries or other low margin activities that only made us look busy.  Profitability went up and the stress level in the office dropped dramatically because the business that we were now focusing on could be planned ahead of time. 

Even though your market mix is probably different from ours, the principle remains the same. Determine your ideal customer and focus on them for your best return on investment.