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80/20 Rule

The 80/20 rule utilized in business shows that 80% of your income is generated by 20% of your customers and that 80% of your workday is taken up by 20% of your clients.  It is important to note that 20% of your clients who take up 80% of your day are likely not the same ones who generate most of your income.

Think of a client who emails or calls every day or every other day. It is probably safe to say that those people you are thinking of take up a lot of time. Is the world ending every time they call or email? Do they act like they are the only client that you have?

To identify the clients who make up 80% of your income is very simple.  You should break your clients up in three different categories.

  1.  Clients that pay on time and do not constantly contact you.  They bring you referrals and new business.
  2. Clients that pay occasionally late and ask questions when needed. They are neutral when it comes to referrals or generating new business for you.
  3. Clients that pay late and constantly email or call.  They leave negative reviews about your company and complain to everyone they can about your business.

There are of course grey areas with the above-mentioned statements; however, I am sure that you have a few people in mind that would fit into all three categories.

The people in category 3 take up 80% of your time. This allows you to only be functioning at 20% for the rest of your client base.  What would happen if you trimmed some of those clients that took up 80% of your time and allowed you to focus on your 20% that brings in 80% of your income?  This could allow you to generate new leads from your category 1 clients, and in turn, this would help you grow your business. Focusing on the priority clients that appreciate your business and generate you more business is how successful businesses are born and continue to thrive.  Getting bogged down by clients who complain to others about your company and pay late hinders your cash flow and has negative impacts on your business.

If you can “trim the fat” of all your category 3 clients at once, more power to you! You will now have 80% more time to focus on the customers that will boost your business and help you gather additional quality clients.  Otherwise, start to slowly phase those clients out, and enjoy your new-found freedom (and extra time on your hands) as well as your zest for creativity.

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