Almost every business fails to focus on the 20 percent of their business that generates 80 percent of their profits.
The 80/20 rule is a universal truth in almost all the businesses that I have worked with over the last three decades. This is often referred to as the Pareto Principle.
It can be summarized as follows: 80 percent of the output results from 20 percent of the input. It’s easier to understand in context:
- 20 percent of your customers generate 80 percent of your profit.
- 20 percent of your goods or services generate 80 percent of your profit.
- 20 percent of your staff is creating 80 percent of the value your customers receive.
The scary result of this is that 8 out of every 10 hours you spend at work does almost nothing for your company’s bottom line!
The million dollar question is: Do you know what 20 percent of your efforts are creating 80 percent of your profits?
This is the most important value that good accounting records can provide to the business owner. Your accounting records should not be just for your accountant to prepare your tax return. Their most important value is to generate daily reports that highlight your best customers, jobs, services, or products. This will quickly show you where you need to focus your efforts in order to increase profits dramatically.