Applying the 80/20 Rule to hospitality
The 80/20 Rule states that a small number of causes are responsible for a great number of effects. In business that often means 80% of your sales comes from 20% of your customers, so looking after them should be your primary focus. But who are they? In addition, 20% of your customers give you 80% of your profit, so looking after that 20% should be an obsession, and the foundation of any smart loyalty scheme.
Other examples of 80/20 that come to mind:
* 20% of your menu items will give you 80% of your sales, and 80% of it will give you 20% of your sales. Time to look closely at the best and worst sellers on your list, and adjust accordingly.
* If 20% of your wine and beverage list gives you 80% of your sales, check the need to keep so many different labels, especially as it usually involves carrying expensive stock.
* 80% of food costs come from a very small number of items eg meat, seafood and luxury ingredients. Anything need your attention?
* A large reduction in costs could be achieved by working on a small number of the items purchased or suppliers (even one or two).
* Could you assume that 20% of staff will generate 80% of the tips? If so, how are you coaching the rest to improve their performance?
* A small number of staff may be receiving a large proportion of the wages - are they producing corresponding value?
* 20% of your employees will cause 80% of your staff problems
* 20% of the agenda items in a meeting can take up 80% of the time - how well is time being allocated? It's no wonder people can get frustrated!
If you're involved in retail:
* 20% of the items in a shop generate 80% of the sales, and conversely 80% of the items generate only 20% of sales. For a supermarket carrying 20,000 items this means they could remove 1000 items and their sales would hardly decrease at all!
* 20% of your sales staff generate 80% of your sales - look after and reward them...do you need all the others?
On a lighter note:
* 20% of your clothes will be worn 80% of the time.
* 80% of what you need to know in a book can be found in 20% of the pages.
Marketing guru Mal Emery puts it forcefully when he says:
"Even those who DO actively nurture their prized clients, often miss another opportunity; to 'show off' this elite group of clients to less well performing clients on their list, thereby creating the discomforting impression for these people that maybe they're missing out on something; that they have been left out of some kind of a prestigious club."
There are 6 basic steps you can take to correct, if indeed you concede YOU are guilty of making this mistake in your business. These are:
1. Grade your client list A. B. C. D. E...
2. Identify your top 20% (A & B)
3. Create an "arsenal" of rewards, such as free gifts (movie passes etc), group outings, closed door events, special discounts, newsletters etc.
4. Give these gifts often and with regularity, say every 3 or 6 months.
5. Select Cs and Ds for special attention to upgrade to the level of you're A & B clients.
6. Make your Rewards programme and who is a part of it, known to the rest of your list via your newsletters, photos, in-house 'signage' and Case Studies.
It doesn't take much to acknowledge your most valuable clients. One of the most primal needs we have, as human beings, is to be acknowledged; acknowledged for our achievements, acknowledged for our contribution, acknowledged for a job well done, acknowledged for being a worthwhile person. If you fulfil this need in your clients, not only will they continue to advocate you and your business, they may even strive to reach even higher levels of support for you. The rewards are indisputable.
Like to read more about the Pareto Principle? There's a good book on the subject The 80/20 Principle - the secret to success by achieving more with less. The above examples can be the basis for an excellent brain-storming session with staff - in my experience most of them will understand the concept and be fascinated by it. Challenge them to come up with examples of how it applies to sales, customer loyalty and cost reduction.
On a dissenting note, Michael Gerber, author of the famous The E-Myth calls the 80/20 Principle 'self-inflicted pain', arguing that it's relying on luck (and bad luck) rather than setting up a sales system that allows all your staff to do a good job. Makes sense - what do you think?
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Restaurant Management