There is a business axiom called the Pareto principle that says: 80% of the effects come from 20% of the causes. In this article we're going to look at examples in your equine business that might help you understand the Pareto principle and how it can make you more money, and save you headaches!
For example, 80% of your profits come from 20% of your work. Where do you make the most money in your equine business? In the recent Stable Management Salary Survey, 42% our readers said that boarding was their biggest profit center. (Look at your income and see where your money is coming from; the "buckets" that make up your profits are your profit centers. This might be boarding, lessons, training, horse shows, breeding, or camp programs, to name a few.)
If boarding is bringing in the majority of your income, but you are spending much of your time trying to keep your lesson program full, maybe you are looking at the wrong profit center. If you spent 80% of your time keeping your boarders happy and the barn full, then your business would probably be more profitable.
What about your boarders? The Pareto principle would suggest that you spend 80% of your time on 20% of your boarders. Unfortunately for many farm and stable owners and managers, that 20% represents the ones who drive you crazy!
So what would happen if you "fired" that 20% and worked harder to keep your top 80% of your boarders happier? Sound like too drastic a measure? How about firing the "bottom" 5-10% of your boarders who cause you headaches and more work than they are worth?
If boarding is your largest profit center and you are wondering whether you should spend money on an indoor arena or new lesson horses, knowing your business could help you make that decision more easily.
But what if you are trying to build up your lesson program to become your top profit center? That needs to be a conscious decision make with good financial counseling. (And that's an entirely different article.)
According to Wikipedia.com:
- 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
The take-home message here is that if you are aware of where you are spending your time and money--and where you are making your profits and losing the most money--you will allocate your resources better and make better business decisions.