The 80/20 Rule for Business – Are You Using It Right?
The 80/20 rule is a proven model for accelerating business growth, yet many companies overlook both the concept and strategies for applying it in their business. In this two-part series, we uncover new, technology-enabled ways for pairing the 80/20 rule with intelligent automation.
Known as the Pareto Principle, the 80/20 rule states that a large portion (80%) of a company’s revenue is generated by a small group (20%) of its customers. This top-tier customer group is the revenue engine – and the place to concentrate sales and service efforts for the greatest ROI. In contrast, just 20% of revenue is generated from a high volume of smaller-value transactions made by 80% of customers. A business may handle all customer transactions in the same way, yet not all transactions generate the same return on investment (ROI). Digital technologies now offer ways to interact with each customer segment more efficiently and create better buying experiences for all.
You’ve seen the 80/20 rule in action across industries:
Travel - Though about 25% of airline passengers are business travelers, they spend about twice as much on upgrades and convenience than other passengers, so airlines concentrate their relationship-building resources with them. This relatively small customer segment generates 75% to 80% of airline revenue.
Grocery - 80% of customers purchase a small number of items on their grocery trips; only about 20% of customers come close to filling their carts. Grocery stores have applied the 80/20 rule with the introduction of self-checkouts, which enable stores to dedicate checkout staff to bigger sales, and reduce the overall cost of checkout staffing. Self-checkout can also create a better buying experience for all customers since the grocery store can better (and more efficiently) meet the different needs of both customer segments. In the case of grocery stores, technology is an important enabler in applying the 80/20 rule to improving buyer experiences.
Manufacturing - Companies that manufacture products from cars to computers apply the 80/20 rule using robotic process automation (RPA). Prior to RPA, 80% of their employees did repetitive, lower-value work, while 20% did high-value tasks. With RPA handling routine work, that 80% of employees can spend their time on high-value tasks that drive revenue and growth.
80/20 Rule Applied to Credit & A/R
Intelligent automation creates a new opportunity to apply the 80/20 rule to credit and A/R processes in business. In many organizations, 80% of customers have frequent, smaller-value transactions, yet much of an A/R staff’s time is spent processing these repetitive transactions.
Technology-forward organizations are now using intelligent credit and A/R automation to manage these transactions. As a result, 80% of customers have a consistent, accelerated digital experience, and the top 20% of customers can be managed with a higher level of customer service.
Intelligent automation applied to this “long-tail” customer segment (the 80% with a high volume of lower-value transactions) accelerates business growth by:
- Simplifying buying transactions for the 80% of customers, which encourages more frequent and expanded purchasing
- Expanding business relationships with top-tier customers, increasing ROI and customer retention.
- Enabling credit solutions to fit the needs of a company’s markets, customers, and goals.
Apruve Builds Automated, Financed Credit Programs
Apruve’s intelligent credit and A/R automation platform help enterprises apply the 80/20 rule efficiently and effectively, across international markets. Our customers concentrate their time on growing strategic clients while our technology takes care of the rest.
Check back here soon for our next article. We’ll cover the transformative business benefits of Apruve’s intelligent platform, including how Apruve reduces Days Sales Outstanding (DSO) to one day, every day.
Like to know more now? Contact a specialist at Apruve to discuss the ROI potential of automated, financed credit programs for your organization.