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Living By The 80/20 Rule

By J.P. Lepez (As Printed in 'The Journal')

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country. Through his calculations, he observed that twenty percent of the people owned eighty percent of the wealth. Years later, this phenomenon seemed to pertain to many other areas of life and business and it became known as Pareto’s Principle. In essence, The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial.

As it turns out, you can apply the 80/20 Rule to almost anything, including your manufactured home business:

· 20% of your time will produce 80% of your overall productivity.
· 20% of your sales staff will produce 80% of the sales.
· 20% of your prospects will end up being 80% of your purchasing customers.
· 20% of your models will generate 80% of your profit.
· 20% of your models will create 80% of your service claims.
· 20% of MH dealers will produce 80% of the industry’s sales.

The list could go on and on. In fact, I’m sure if you thought about it long enough you could come up with dozens of different ways the Pareto Principle affects your business.

The value of the Pareto Principle for a manager or business owner is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those crucial 20 percentage points produce 80 percent of your results so it is wise to identify and concentrate on those things that really count. If something in the schedule has to be put off or if something isn't going to get done, make sure it's not part of that 20 percent. If you’re going to spend a lot of money on marketing recognize and pinpoint the 20% of your prospects who are most likely to buy.

Your Business Needs Analytical Tools To Prosper

The 80/20 rule is powerful because it allows you to make the most informed decisions based on a simple formula that works. Yet, most MH Professionals can’t take advantage of it because they don’t have the analytical tools necessary to give them the raw data to use the principle. Because of this, most spend the majority of their time perpetually doing tasks that don’t matter. This is when a computer and the right software becomes an invaluable tool that separates the leading 20% of the industry from the insignificant 80% who are just getting by.

For example, if you equip your sales staff with a powerful, yet easy to use software program like HOME/TRACK (available from Alpha Data Systems (800) 476-3857), they can quickly and easily quote homes, print Form 500’s, and do multiple credit apps with a mouse click. As they do this, the program is automatically computing gross sales, washout sheets and adjusting your floor plan & lot inventory. You can then print reports at any time to show you which 20% of your sales staff is producing 80% of the sales. With the sales figures in black and white you can then make the decision as to invest more to make your great salespeople terrific or to make your good salespeople better.

80/20 Rule Applies to Successful Advertising

HOME/TRACK also allows you to track prospects, their individual demographics and the method in which they found you (marketing method). If you serve five counties in your area and 80% of your sales come from only one of those counties where are you going to spend the majority of your advertising dollar? Subsequently, if you advertise using five different methods and the quarter page ad in the Sunday paper is bringing 80% of your prospects would you not place a bigger ad and drop the others? It is only with the help of the software that you would be able to track this. Using any other method to make these critical decisions is at best a shot in the dark and dollars wasted.

80/20 Rule and Service

Your service department is also very susceptible to Pareto’s Principle. As your service manager is inputting claims in HOME/TRACK, the system is recording the 20% of your models or parts that are causing 80% of your service calls. At the end of the month or quarter you could print reports that show you the troublemakers and if you needed to call the manufacturer you would be relying on facts and figures as opposed to just a hunch. Chances are you will be paid faster and more often because you have the right information.

As with any other law or principle, the fortunes go to those who know how to apply it. Yet hunches will only give you “I thinks” while printed reports and documentation from industry specific software will give you “I knows.” The successful 20% will always opt for the latter while the other 80% will still rely on hunches. Which one are you?

J.P. Lepez is the marketing manager at Alpha Data Systems, makers of the HOME/TRACK. HOME/TRACK offers integrated, industry-ready, Windows-based software for retailers and manufacturers in the areas of accounting, sales order and quote configuring, inventory, service, and e-claims.

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