Just about everyone has heard of the 80/20 Principle, but few understand its power and implications.
Also called the Pareto Principle, or Pareto’s Law, after the Italian economist who observed that 80% of the land in Italy was owned by 20% of the population, and that 20% of the pea pods in his garden contained 80% of the peas, it’s uncannily accurate, across a wide range of data sets. (Don’t you wonder how he generated the pea pod data?)
That said, the 80:20 relationship isn’t set in stone. In some cases, it might be 90/10 or 70/20.
A few interesting examples:
- Microsoft once said that by fixing the top 20% of bugs, they would solve 80% of the crashes.
- In the U.S., 20% of patients use 80% of health care resources.
- In the financial services industry, 20% of customers generate positive income, while the other 80% actually cost the firms money.
- Project managers know that 80% of their time is spent on 20% of the work.
In business, as a general rule:
- 80% of your profits come from 20% of your customers
- 80% of your complaints come from 20% of your customers
- 80% of your profits come from 20% of the time you spend
- 80% of your sales come from 20% of your products
- 80% of your sales are made by 20% of your sales staff
So what’s the power, and what are the implications, and how does it apply to plastic surgery or cosmetic surgery?
To increase profits, find more patients that match the profile of the 20% of your patients that are the most profitable..
To increase consults, help the high-performing 20% of your office staff to perform even better with extra training, incentives, awards, etc, and find more people like them.
Figure out how you’re spending your time, and spend more time doing the things that lead to the profits.
One writer says that across hundreds of practices, the top six procedures you do result in 80% of your revenue. So do more of those.
And so on.
It also means that it’s far more effective to focus on what’s working and what you’re good at than it is to focus on getting better at what you’re not so good at.
It goes deeper.
80% of the 80% is caused by 20% of the 20%.
Think what that means. It means that 64% of your profits come from 4% of your patients or procedures. That seems to hold pretty true in the plastic surgery business. The writer who found that six procedures generate 80% of the revenue found that the top 3 procedures generated 60% of the revenue.
And 80% of the 80% of the 80% comes from 20% of the 20% of the 20%. It means that 51% of results come from .8% of the causes or efforts.
Your results may vary, of course. You may operate in a 70/30 or 90/10 environment, and these exact percentages may not hold exactly, but the general relationships are remarkably constant, no matter what you’re measuring.
For those of us concerned with online marketing and website marketing– if you’re doing AdWords, it means that something like 80% of your clicks will come from 20% of your keywords.
One writer claims that 20% of the effectiveness of search engine marketing comes from good use of the technology, and 80% comes from human analysis and interpretation, not to mention intuitive thinking, good copywriting and ad creation, designing good landing pages, and so forth.
Fascinating stuff. If you want to dig deeper, there’s a good book called “The 80/20 Principle—The Secret to Achieving More with Less” by Richard Koch.
Questions? Thoughts? Arguments?
What 80/20 relationships have you already seen in your practice? More importantly…how can you put the 80/20 principle to work to get your practice to the next level?