Your 80/20 Treasure Map

written by Bill Canady | Management Practices

July 26, 2023

I can tell you a lot about your business without you having to tell me a thing. Roughly 80 percent of your revenue comes from just the top 20 percent of your customers. Moreover, 20 percent of your products produce 80 percent of your total sales.

You’ve told me nothing about your business, but I’ve just told you two existential facts about it. I can do that because this radically skewed 80/20 distribution pattern appears in virtually every business. For managers, this truth offers a treasure map: Go here, not there! Dig here, not there!

Best of all 80/20 directs your company’s focus without the necessity of tedious argument, endless controversy, or those most fickle faculties: intuition and inspiration. A strictly data-driven basis for identifying your best customers and best products, 80/20 promotes empirical leadership decisions grounded firmly in the numbers. Period.

In a series of bite-sized blogs, I will show you how to take the piles of data your business generates and reduce them all to what is literally a treasure map—the simplest one you will ever use. This map consists of nothing more complicated than a two-dimensional drawing of four small boxes (“quads”) arranged inside one big box.

  • Quad 1 is The Fort. Put it in the upper-hand corner of the big box.
  • Quad 2 is The Necessary Evil. Put it in the upper right-hand corner of the big box.
  • Quad 3 is Transactional. Put it in the lower left-hand corner of the big box.
  • Quad 4 is Price Up or Get Out. Put it in the lower right-hand corner of the big box.

In the set of blogs that will follow, I’ll tell you how to fill Quad 1 with your top-performing products (A products) sold to your top-performing customers (A customers). Then I’ll tell you how to Fill Quad 2 with your remaining products (the bottom 80 percent, your B products) sold to your A customers. Next, you will find out how to fill Quad 3 with your top 20 percent products (A) that sell to the bottom 80 percent of your customers (B customers). Finally, you can put your least-profitable 80 percent products (B) that sell to your least profitable (80 percent) customers (B) in Quad 4.

Now you have your treasure map. It shows you the way to your maximum opportunity: your A products bought by your A customers. Send 80 percent of your shovel and pickaxe crew up there, to Quad 1. Devote 80 percent of your resources and effort to digging here. They call it “the fort” because you must hold it by any means necessary.

Do not neglect Quad 2. Your A customers do not exclusively buy your A products. Some of the time, A customers need B products. Devote sufficient resources to ensure that you satisfy this need. You always want to make your A customers happy. Quad 2 is a “necessary evil” because you cannot afford to alienate your A customers by failing to sell them the B products they need.

 A good treasure map not only shows you where to dig, but where not to dig very deeply and where not to dig at all.

Don’t turn your back on Quad 3 but treat it as strictly transactional. Sell these A products to B customers by investing the fewest resources and the least effort in doing so. Be an order taker, ring up the sale, and be sure to count the change.

As for Quad 4, it’s either price up or get out. If you figure out how to sell a B product at a high enough price to create a meaningful profit, sell it. If you cannot figure it out, drop the product. If this means losing some low-performing customers, congratulations! You and your company are healthier for it. Chasing after losses is no fun and besides—it will kill you sooner or later.

author avatar
Bill Canady
Bill Canady has over 30 years of experience as a global business executive in a variety of industries and markets focused on industrial and consumer products and services.

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