The 80/20 Principle

Andy 
Hell yeah! We’re back with another episode of The Tradie Show, and I know your ears are going to be loving this one. So this week, you’re going to learn the secrets to achieving more with less. 

Ange
Hmm. Sounds magical, doesn’t it? Especially when you feel like you’re way down doing all the things in your trade business starting at the crack of dawn to burning the midnight oil.

Andy 
Yeah. Most business owners feel like there’s just not enough hours in the day. We’re always switching from one thing to the next and not being entirely intentional when we switch. 

Ange
Yeah. Look, it’s a common problem that’s for sure. The thing is you have too many problems to solve and not enough time. And that’s why I want to talk about the 80/20 principle.

Andy 
Oh, there’s no doubt about it, Ange. You’ve always been fascinated by the 80/20 principle, haven’t you? 

Ange
Yes, I have. 

Andy 
So, what is it and why are you telling trade business owners about it today? 

Ange
Well, I’m a sucker for ideas and strategies that help with supercharging productivity because being busy doesn’t always mean you’re being productive.

Andy 
We certainly don’t want to be busy for busy sake. 

Ange
No, and the fact is, it’s impossible to handle every task that gets thrown our way or even every task we would like to get done. 

Andy 
And as I understand it, not all tasks are created equal. 

Ange
So, the 80/20 principle, also known as the Pareto principle, is about finding the small things that give you the biggest results or impact. The idea is that you use the 80/20 to help determine what’s of vital importance, then you delegate the rest of your tasks or simply let them go. 

Andy 
Okay, so what you’re actually saying there, is we spend far too much time working on things that don’t actually matter. 

Ange
Aha. Pretty much. So, by zeroing in on the 20 percent of activities that lead to 80 percent of your results, you’ll actually achieve better productivity and profit in your trade business, plus better efficiency and happiness in life.

Andy 
Whoa, that’s a big call. 

Ange
It is, but it’s actually a well documented concept. The principle’s been around for a really long time. It was discovered by an Italian economist, Vilfredo Pareto, way back in 1897, but it was Richard Kosh who wrote about the concept more recently in his book called The 80/20 Principle, Achieve More With Less. His book has highlighted the importance of learning and applying the principle. 

Andy 
It sounds like this 80/20 principle has stood the test of time for a good reason. 

Ange
Yeah, exactly. So here’s the thing. The concept isn’t about the numbers. The 80 percent and 20 percent are kind of just indicators. 80/20 is about adopting this mindset to help you focus on what things will deliver the most reward and the best results in business and in life.

Andy 
Like, what’s the 20 percent that’s leading to the 80%? 

Ange
Yes. So, let me give you an example so that it makes a bit more sense. In business, 80 percent of your productivity comes from 20 percent of tasks on your to do list. So, this would help you focus your time on high impact tasks that increase your profits.

Andy 
And if it’s about working harder on the tasks that matter the most, How do we know which tasks have a high impact?

Ange
Well, that’s a really good question. Inside Lifestyle Tradie Membership, we teach members how to apply the 80/20 principle in a trade business, but also in life with the exact action steps. There are absolutely so many applications for this 80/20, so never assume that you know the answer on where to focus this 20%. 

Andy 
The thing is most trade business owners are so busy and Ange mentioned that earlier, but we’re so busy and we’re running around like a chicken with a head cut off. But majority of the people that I work with, when I actually sit down with them and understand exactly what they’re doing, there’s so much fluff, there’s so much wasted time and they’d be able to spend that time on maybe not sitting in the office to all hours a night, but maybe heading to the beach or doing something they enjoy or even working on the business to make sure they’re getting the best bang for their buck. 

Ange
Exactly. So this is where the 80/20 is perfect because when you actually understand the principle and apply it to your business, then you’ll really hone in on where you should be spending your time so that you get 80 percent of the gain.

Andy 
Yeah. And let’s think about it this way. You know, when you focus on customers that make you the most money, if you categorize them into the A, B, C, D customers types, we’ve discussed this in a previous podcast episode this season, but 80 percent are likely to be C and D grade customers, and 20 percent are likely to be A and B grade customers. 

Ange
Yes, but that’s actually not how we operate, is it? And that’s why lots of trade business owners are perhaps not making money. 80 percent of their customers are making you 20 percent of the profit. 

Andy 
Which means that 20 percent of your customers are making you 80 percent of your profit.

Ange
So I do just want to hold the horse for just a sec because podcast listeners, did you actually get that? We just said that super quick, but it’s actually incredibly important that I’m going to say it again. 80 percent of your customers are making you 20 percent of your profit, which means 20 percent of your customers are making you 80 percent of your profits. So who are these 20 percent of your customers that you really need to understand and hone in on? These are no doubt your A grade customers. 

Andy 
Exactly. So it stands to reason that it still makes sense to know who that 20 percent of your customers are. You know, the customer is king or queen, you tell yourself. Well, no, not every customer. Have you ever stopped to think about which customers make you the most profit and cause you the least headaches? 

Ange
Yes. Cause you the least headaches. So by doing a review of your sales in your P&L or perhaps your job management system over the last year, using a report that cuts your revenue and profit by market segment and then even down to the customer, you’ll actually be able to see the profitability for each customer group.

Andy 
This is another one, that’s an absolute cracker. So it’s likely 20 percent of your team are your top performers, making you 80 percent of your revenue and profit and 80 percent of your team are making you a measly 20 percent of your revenue or profit.

Ange
Ouch. But I bet they think that they are amazing. 

Andy 
Oh, there’s no doubt. Every tradie thinks they’re killing it and that’s why creating KPIs so your whole team is on the same page with expectations and the steps to achieving these goals are so important in a trade business. 

Ange
Yeah, it’s important to keep an eye on your team’s metrics. Not only does it keep the team on track to hit the targets that you set, but it keeps the trades people honest in their day to day activity. God, I love a good process. 

Andy 
Yeah, a hundred percent. And just on that, it’s important to deal with these guys differently. Let’s call them high performers or rock stars. You know, if you recognize and you reward your rock stars in the same way you do with your average performers, then what’s making the rock stars really wanting to step up? So maybe they’ll even look at moving on and finding a company that does reward them for how good they are. 

Ange
I suppose we can see this the other way too, that if your average performers can see all the perks of being a rock star, it’ll motivate these average employees to do better. 

Andy 
Definitely. 

Ange
That’s what we hope anyway, right? And if they’re not motivated to do better, well, maybe they’re not a best fit for your business anyway. 

Andy 
Yeah, exactly. But what other things can trade business owners apply in their business with the 80/20 rule? 

Ange
Well, as a trade business owner, you’d have a list of services you provide, right? So, let’s talk plumbing. You’d have things like block drains, installing hot water systems, pipe relining. Maybe as a landscaping business, you’d think of things like garden design or garden maintenance and retaining walls, for example. 

Andy 
Yeah, that’s right. But those services don’t make you an equal amount of profit, right? 

Ange
That’s exactly the point.

Andy 
Uh huh. 

Ange
So in your trade business, do you know which services are more profitable? Because this idea of being used for the 80/20 principle is here too. If you knew which ones, you’d actually go all in on the most profitable services, the ones that you most enjoy. 

Andy 
Yeah, we teach our members the how, and what’s important to note is once you’ve identified your best performing services, you need to tweak your strategy, including your business plan, where you want to prioritize these things, along with your marketing plan to reflect these priorities.

Ange
Exactly. Sorry to interrupt the episode today. But there’s something really exciting happening and I know you’re chomping at the bit to tell our listeners more about it. Aren’t you, Andy? 

Andy 
Yes, I am. We are super excited to let our listeners know that we’re touring the country again with our Lifestyle Tradie Live event this September. Hell yeah! 

Ange
Other than your bolt head, what can our listeners expect to see? 

Andy 
Come on, come on, that’s a bit rough. Well, they’ll see how to go from chaos to control, with the ever changing economy and those high interest rate rises, there’s never been a more important time to get your business structure right. I’d like all our listeners to think of it like an in person, intimate podcast episode. 

Ange
Yeah, exactly. We really are real people. We don’t just live here in podcast land. 

Andy 
Listen, if you’re sick and tired of working super long hours, you want to get off the tools, scale the business, maybe even sell the business, or just want to work on your business and not in it, then Lifestyle Tradie Live is for you.

Ange
If you truly want to make more profit, gain back your time to spend it with friends and family, or take that three week camping trip you’ve always been putting off, then tell your wife or business partner to come along to Lifestyle Tradie Live in a capital city near you because nothing changes if nothing changes. Take this first step to really set your business up for success. As Andy said, there has never been a more important time to get this right. You will love it. 

Andy 
Register now at lifestyletradie.com.au.

Ange
So Andy, a question to ask is, In light of what you just said, do you actually have the right equipment and skill set within your team to maximize this profitable work? 

Andy 
Well, that’s a great point. Plus you want to prioritize these jobs at dispatch, you know, like moving work to accommodate these high profitable jobs.

Ange
Agreed. 

Andy 
In essence, the 80/20 principle is helpful in bringing clarity when deciding where to focus your effort and your resources. 

Ange
Exactly. So they were really good examples that you can apply right across the team, you know, from a dispatch scheduler right through to the boys out in the field. So it is really easy in a quick way to prioritize your time and hence where you lay your attention. The thing is, if you’re always working on low value tasks and services, and if you’re still really focused on these C and D grade customers. Then 80/20 could make a huge difference in your business. Once you get the hang of it and it becomes literally like a culture piece for you, it’s not a one time exercise.

Andy 
And it’s not just about work either, is it Ange? You can apply this 80/20 rule in your life as well. 

Ange
Yeah, you sure can. By applying 80/20, the premise is you’ll get more out of your day and you’ll actually feel happier in your personal life when you focus on what is most important to you. 

Andy 
So it sounds great in theory, but tell us more.

Ange
Well, it is great. So let me explain. 80/20 helps you divide your valuable time and create more balance and joy in your day. So it’s not about finding the perfect solution. It’s about finding what makes you feel, I guess, productive and happy and pursuing those few things instead of being weighed down by doing it all.

Andy 
Come on, Ange, give us an example. 

Ange
Okay. Well, before I do, I love this quote by Richard Koch. He actually wrote, 80 percent of achievement and happiness takes place in 20 percent of our time. We let life happen to us rather than shaping our own lives. 

Andy 
So what you’re saying is, like I said earlier, we all run around like headless chooks, trying to be everything to everyone and it sometimes is making us miserable.

Ange
Yeah, it is. That’s what I’m talking about. We actually have the capability to design our life instead of it being by default. So say you spend 20 percent of your time, I don’t know, with people that bring you 80 percent of happiness, then spend more quality time with those who make you happy. And to be really clear about it, I guess I’m asking you all to think about who exactly that is. Like literally think about your friendship group and name them out loud. I know you guys are driving. So who are the people that are most important to you that give you the most joy? 

Andy 
So what you’re saying, Ange, is I shouldn’t be talking about my mates I go surfing with or who I go to golf with. You’re actually saying I should just spend more time with you, right?

Ange
Exactly, you’ve got the right idea. So the thing is, few people spend enough time and thought cultivating their own happiness, I suppose. They let life and others dictate, take their day instead of them designing, you know, their own perfect day. 

Andy 
So that’s all great, but are there any other tips that our listeners can relate to with this 80/20 principle in their lives?

Ange
Well, to be honest, I’m just getting started. 

Andy 
I know you are. That’s why I asked. 

Ange
But there is a really obvious one and you’re all, when I say this, you’re all going to go, Oh, but when you stop and think about it, most of us use the same clothes over and over again. 

Andy 
You’re talking about me right there. I pretty much have, what, 57 now black tees and my same gym black shorts, Nike shorts, all my, in the colder weather, my same black Nike tracksuit pants, is that what you’re saying?

Ange
Yes. You’re a Nike, walking Nike brand advocate. I am saying that. So we use 20 percent of our wardrobe, 80 percent of the time. So this is a prime opportunity for us to go through our wardrobe and pull out stuff that you haven’t worn for a really long time and donate most of it to charity and simplify even your routine in the morning with maybe fewer options. You’re like the poster child. 

Andy 
Well, I can tell you what, whenever I’m going out, if it’s going to work, I know exactly what I’m going to wear. I, I know, Ange, you’re always like, what am I going to wear today? And I’m just like, black tee, baby, let’s go. And then we go out on the weekend. You’re like, what am I going to wear tonight? And I’m like, black jeans, black tee. Let’s go, baby.

Ange
It’s exactly what happens in our life. 

Andy 
It is, it is. But when it comes to my phone, it’s a bit of a different story, isn’t it? If only about 20 percent of the content on our phones or TV is responsible for 80 percent of your enjoyment, the other 80 percent is absolute filler. It’s a massive time waster, right there. 

Ange
Well, isn’t that an eye opener to highlight the importance of the 80/20 rule? So the moral of 80/20 is if you’re going to spend time on something, spend it on what matters most. The 80/20 principle is a tool to help you decide what are those right things, right?

Andy 
Well, like all good principles though, it’d be worth noting a few of the drawbacks. 

Ange
Okay, that’s a fair sentence. 80/20 is not a mathematical law, it’s like a general observation.

Andy 
So, one of the limitations is people sometimes mistakenly conclude that if 20 percent of factors should get priority, then the other 80 percent can be ignored.

Ange
Well, Don’t entirely neglect the small tasks, these, what I call lower value tasks, because eventually some of the small tasks will actually become important. 

Andy 
And the other one is prioritizing high impact and lower impact tasks, which is not an exact science, especially if you’ve been basing your decisions on past performance.

Ange
Yeah, fair. Because circumstances change, right? So the 80/20 principle is not always useful for, say, designing strategies for the future. Because that said, I am a huge advocate of this 80/20 principle with only 24 hours in a day, you actually need to use your time and your energy and your resources wisely.

Andy 
Okay. Ange, what listener dilemma are we going to solve today in Ask A&A Anything? 

Ange
Well, what are people using in terms of vehicle tracking for their fleets? That’s the question we’re getting asked.

Andy 
And we discussed this in considerable length in an episode on devices in the field back in season nine. So scroll back through your feed to listen if you have missed it.

Ange
Yeah, that’s true. We focus more on the why of vehicle tracking back in that episode rather than the what. So just a quick recap. Vehicle tracking is not about spying on your team all the time, right?

Andy 
Now, for most trade businesses, you’re working not just in a 120 kilometer radius geographically. So vehicle tracking helps reduce travel time because jobs can be scheduled across the fleet based on the truck’s locations amongst other things. But I do believe it’s impossible to operate a streamlined business without having eyes on your vehicles, but you’ve got to have a policy in place as well. 

Ange
Agreed. We talked about the importance of making it standard procedure in that previous episode. We Actually also clarified that Australian law does allow you to track your company vehicles using GPS, though rules do differ slightly between each state and territory.

Andy 
In Dr.DRiP we use GPS tracking systems called WixTrack and that was great from us. It was about 20$ per month per device and that figure is probably a little bit out of date now but it just gives you a bit of an idea. 

Ange
We then had an auto electrician to install each device for an individual fee, I remember that, depending on where you install it. We always installed them under the dash so that our team couldn’t tamper with it. 

Andy 
Well, some staff seem to find their way around these things. It’s always a bit of a laugh at what they try and get up to. But I know some of our members are using fleet dynamics for GPS tracking and by all reports they seem happy with them.

Ange
Yeah, they do. But like anything, you need to do your own research and understand your why before making an investment in any type of technology for your trade business. 

Andy 
Yeah, that’s right, Ange. The thing is, I believe every trade business should have GPS tracking through their trucks because it saves on overtime, it saves on dispatching, like there’s so many good things. If you don’t have GPS on your fleet of trucks now, I definitely guarantee you it’s costing you money. 

Ange
Absolutely. When you start looking at cross profit margins of a job. Time is one of the factors that we as trade business owners fail to really look at closely and this is where GPS can actually help you make money on time.

Andy
And there’s been so many times where customers have said you weren’t there on the job for so long or whatever they may be saying and you’ve got all the data, you’ve got all the um, information and proof to go back to them. So definitely if you don’t have GPS through your track of vehicles, do it and do it now. Alright, I reckon that’s all we’ve got time for today. 

Ange
Yes, and as always, we hope you’ve been able to take a gold nugget out of this episode and apply it in your trade or contracting business. So that’s it from us. Thanks for listening. 

Andy 
Have the best week, crew, and see you next week. 

Ange
See you. 

Andy 
Subscribe to The Tradie Show, wherever you get your favorite podcasts, rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.