A look at the 80/20 principle

A look at the 80/20 principle

Can you apply this rule without shafting the regular folks?
Nov 01, 2011

I was recently reviewing an article for dvm360.com when I started to feel uncomfortable with the advice it was giving—advice I was considering passing along to you. The article was titled “Are you working harder for less profit?” and discussed the Pareto principle, otherwise known as the 80/20 rule. I decided not to post it online but instead to present it here.

According to the article, economist Vilfredo Pareto theorized in 1906 that 20 percent of the people consistently owned 80 percent of the wealth. He also noted that 20 percent of the pea pods in his garden contained 80 percent of the peas. Turns out Pareto was on to something. A century later, his principle is in play when we observe that we wear 20 percent of our clothes 80 percent of the time, or that only 20 percent of people will notice if a project is just 80 percent perfect.

The article applies this 80/20 rule to business when marketing consultant Betsy Kruger says you can expect the top 20 percent of your clientele to generate 80 percent of your profits. Here’s Kruger’s advice for how to leverage this principle:

1. Distinguish. First, you have to know who the top 20 percent of your clients are. Mine your data for this information, then allocate one day a week to serving those clients with a top marketing strategy.

2. Target. Seek out prospects who could be on your top-20-percent list on the other four days of the week. In a veterinary practice setting, this could be either new clients or current clients who have the potential to become top performers.

3. Convert. Convert these prospects into top clients by using a proven market strategy. Kruger says you can anticipate that these new clients will cause your profits to quadruple.

Now, I have no problem with this advice in general. It’s appeared in one form or another in Veterinary Economics many times. But I have to pause when I get to a sentence like this: “Allocate neither time nor other resources to serving customers in the bottom 80 percent. Admit they cause more problems than they’re worth.”

Kruger goes on to say, “Should we treat customers equally? Absolutely not! Your customers do not treat your business equally. Your top customers generate massive profits, while other customers generate minimal profits.”

Again, this is no doubt true. But does that mean you should ignore the needs of clients in the bottom 80 percent of your rankings or look at them as a hassle? I know some certainly are, but let’s focus on the ones who are pleasant people but happen to spend less on veterinary care—and always will. What do we do about them? Does the Pareto principle give a business a reasonable excuse to treat the bottom 80 percent of its client list poorly?

I’m sure you’re with me in thinking it does not. That said, how do you maximize your practice all-stars while caring for and serving average clients? How do you get the resource allocation to work out strategically (i.e., profitably) and still be able to sleep at night? I’d be very interested in your thoughts and experiences. Please post your thoughts at dvm360.com/8020.