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The Pareto Principle in Distribution

Categories: Distribution, Sales & Marketing

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Most of us have heard of the 80/20 rule, also known as the Pareto Principle. It was named after Italian economist Vilfredo Pareto. He came up with the concept back in 1906, when he noticed that 80 percent of the land in Italy was owned by 20 percent of the population.

The essence of the Pareto Principle is that 80 percent of the effects in life or business typically come from 20 percent of the causes. It’s not always true, but in a surprisingly large number of cases, it is.

For instance, when we examine worker’s compensation claims due to work-related injuries, very often we find that 80 percent of the payout costs can be attributed to just 20 percent of the injury claims. Related to this, a study found that unsafe actions taken by workers on the job cause about 80 percent of work-related injuries. Only 20 percent were the result of hazardous working conditions.

We also find the 80/20 rule alive and well in jansan distribution. In fact, it often plays a much more significant role in our industry than most of us realize. For example:

• 20 percent of the products sold to facility managers and contract cleaners typically are purchased to handle 80 percent of the cleaning tasks performed in a facility
• It appears that 80 percent of sales is for the same product mix (product offerings); 20 percent is for other types of products
• For most end-customers, approximately 80 percent of their cleaning budget is for labor while 20 percent is for consumable cleaning items
• When there are complaints about a product’s performance, whether from a manager or cleaning contractor, typically these come from 20 percent of the customers
• It also appears that 80 percent of the feedback, good or bad, on cleaning products comes from about 20 percent of customers
• When distributors conduct floor care audits for a building manager or a cleaning contractor, often we find that 80 percent of the foot traffic in a facility occurs in just 20 percent of the building’s hard surface floor space. In many cases, this can apply to carpet as well. Very often it is just 20 percent of the hard surface or carpet in a facility that needs the most cleaning and care
• Many distributors may already realize that often 80 percent of their sales are generated by just 20 percent of their sales team
• Related to this, it appears that 20 percent of the marketing strategies implemented by a distributor often produce 80 percent of the sales results
• Taking a look at web traffic, especially now that e-commerce is becoming such a significant part of a distributor’s business, we often find that:
  • 80 percent of the visitor’s time at a distributor’s website comes from just 20 percent of the website.
  • 80 percent of the leads generated from content marketing programs are the result of 20 percent of the content on the site.
  • 80 percent of the sales on the website typically come from 20 percent of the web visitors.
  • As to how customers find our sites, it is often just 20 percent of the keywords used for the site that generate 80 percent of our web traffic.

Seeing the 80/20 Principal as a Tool

What this all comes down to is that we need to look at the Pareto Principle as a tool. For instance, those 20 percent of our customers that complain about a product, are often the customers we most can learn from.

If they complain that a product does not perform well, as an example, their complaint may be worth heeding. We know the 80/20 principle also tells us that most people do not offer feedback on a product, so we may never really know what our customers really think about it.

It’s just like telling a waiter in a restaurant that everything was fine after a meal even though we did not like it at all. How is the kitchen to know there might be a problem if no one says anything or everyone just says all was fine?

As to the floor care audits, explaining to our customers why 80 percent of their floorcare issues often involve just 20 percent of their floor or carpeted areas— and what steps they can take to minimize these problems—is a perfect opportunity for distributors to differentiate themselves from “big box” and mega-ecommerce competitors.

Further, if 80 percent of our sales are coming from just 20 percent of our sales force, this tells us we need to examine why this is happening and look for ways to change this. It might mean refocusing our training efforts and concentrating on ways everyone can improve their sales, which can have a significant and positive impact on our businesses.

About the Author.

Mike Watt is an ISSA Certification Expert (I.C.E.) and director of training and new product development for Avmor Ltd., a North American manufacturer of professional cleaning solutions for the hotel and hospitality sector. He can be reached at [email protected].