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Maximizing Profits – The Business Building Cycle

The Mage

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Ever heard of the Pareto Principle, also called the 80/20 rule? I’m sure most of you have, but how many of you are applying it to your business?

If you haven’t heard of it, the Pareto Principle is the idea that 80% of your results come from 20% of your efforts.  It’s more an observation than rule, and a loose rule since the numbers often don’t exactly fit 80% and 20%. But as a generality it can be found everywhere, including in your business.

This concept (that I learned in the forums) can be used to help make your business more efficient. If you take a serious look at your locations, you will find that somewhere around 20% of them are underperforming. You should consider eliminating those locations. The effects will have a small impact on your income, and a larger impact on freeing up time.

A caveat is that this should not be a simple action. You don’t just want to dump that bottom 20% without taking a few steps first. Take a look at the location, and products, and figure out if there is something that could bring it up. Maybe it could be in a better location, or a change in products could make a big difference. Does the machine have a flaw that nobody has told you about? Sometimes people will avoid the machine that “eats their money” without ever mentioning it to the Vendor.

Distance is also a factor. A location in a real convenient location that takes little to no time to get to, or is on the way to another can perform lower than a location that can take a long time to drive to. But even then, that further location might not be as bad if you are expanding into that area.

How you eliminate is also depending on if you want to grow. If your growing your business, you want to eliminate slower than you are building. If you are right about where you want to be, you keep adding locations, and eliminating the worst performer each time you add a location. And then if you are wanting to cut down, you can be the most aggressive, until you get down to where you want to be. Although you might want to sell off those locations instead of just eliminating them.

Every time you do this you are increasing your hourly income. Below is the cycle you should follow, but while they are in a numbered order, you really want to do all constantly:

1.       Grow

a.       Add new locations. Some will be good, some will be average, and some will be bad.

2.       Modify

a.       Attempt to fix the issues with the poor locations. Doesn’t hurt to see if you can make your good locations better too.

3.       Eliminate

a.       Remove the worst locations at a speed consistent with your desire for growth.

4.       Repeat

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