How To Use The 80-20 Rule To Generate Massive Profits In Your Business

It's called the 80/20 Rule. Otherwise known as the Parato Principle, after the inventor.

This man found that in finances, 80% of the wealth was owned by 20% of the people. This ratio of 80/20 has since been expanded to include almost any subject. 80% of the races are won by 20% of the runners, Etc. Whatever products you sell at retail... 80% of the profit comes from 20% of the product selection.

Here is the single biggest thing I got from this principle:

80% of the retailers are sharing the lowest 20% of the profits. (I mean from a single product category)

Let's take vacuum cleaners as an example.. Let's say 80% of them sell the cheapest and lowest quality machines. K-Mart, Wal-Mart, Lowes, Builders Square, Target, etc. mostly sell the lowest priced machines. They also advertise the lowest priced machines.

Think. Almost every ad you see that sells vacuum cleaners is offering them for $39 (yuck!) to just under $200. Mostly on the low end. Who wants the cheapest, lowest priced things? The 20% of the population who makes the lowest amount of money. Sure, there are well off people shopping at Wal-Mart, but they aren't the bulk of the business.

For example, in our town, there are 16 places you can buy a vacuum cleaner. All of them advertise from time to time. All advertise the same price point. They are dividing up the total market of 17,000 population, and they are" sharing" the lowest 20% of the profits, to be made from vacuum cleaners.

We advertise only the higher priced vacuum cleaners. We even put the prices in the ads. Our lowest price is $279. Most advertised machines are much higher. Our average profit from a single vacuum cleaner sale is almost exactly $300. That's easily 10 times more than the profit from a $59 sale. Even with Wal-Mart's " Bare bones" buying practices.

If you advertise the higher end products, you'll find there is no competition. Your competitors will be sharing the lowest, least profitable 20% of the market. You'll get" all" of the" most profitable" 20%. Won't that be a pleasant experience?

Claude Whitacre is the author of the book The Unfair Advantage Small Business Advertising Manual. Claude speaks on small business advertising and retail marketing.

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