The following is a true story – Using the : “Pareto principle ” which you may never have heard of when applied to commerce ?! ( 80% of your sales come from 20% of your clients )
By the 1980’s a former electtrical engineer named George had established a number of very successful businesses in the South east of England .
The core business was cleaning office buildings with his Goldsmith services ; supplying equipment & dispensables / cleaning materials needed daily .
At the height of the business he had 91 contracts and employed 168 workers
George’s success was based on high standards at all times , to ensure this was maintained he worked seven days each week often starting at 2:30 am to supervise night -time contracts .
He realized he could not continue to work at such a pace without long term health consequences , as well as the desire to have a reasonable lifestyle , at least as good as some of his employees !
He discussed the need for change with his wife and bank manager ; the latter had given him good advice in the past ; he now suggested to George keeping in mind the type of business he ran to reduce his contracts from 91 to 17 as an ideal figure .
George decided to apply this radical solution to his problem ; this involved talking to all his customers informing the majority of an alternative supplier in the future and thanking them for their past support .
He explained to the 17 he chose to retain they would get an even better and more personal service in future .
Previous to the change his turnover was £ 750,000 ; this now fell to £180.000 : but an amazing thing resulted – his actual profit margin went up !
George now had a take home pay of £ 28,000 ; he only worked a five day week ; and at last he felt he had a lifestyle befitting the very hard work he had put in to build the business .
He was better off in every way for the following reasons :—
1 . The reduction in customers gave him time to more effectively manage the business and control standards without running himself ragged .
2, The companies he let go would not forget his integrity in arranging alternative services – further building his reputation .
3 . The businesses he retained appreciated the stronger relationship and greater customer care he gave and increased their orders .
All business owners understand the difference between cash flow and profit ( Amazon up to 2002 had a cash flow of £ 386 million but nil profit and a £ 2 billion overhang ! )
The lesson George’s story can teach us is ; if the Pareto principle can be applied – ie : 80% of your profit comes from 20% of your customers . Care for the 20 % only !
Much depends on the business model you use , but the basic rule applies . Keep in mind your revenue model and ask . ” Can i reformulate it to retain the same or more profit ?
Another business idea from www.yobrain.com
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