The 80:20 Rule
The Pareto Principle was introduced to us by Vilfredo Pareto, an Italian economist, in the 1800’s. Pareto acknowledged a phenomenon within society that he coined the vital few. He noticed a natural division amongst those with money, power and influence (top 20%) in contrast to the “trivial many” (lower 80%) who lacked money and influence.
In business, we have come to know the 80:20 rule as doctrine. 80% of a company’s sales activity is generally produced by their top performers, the top 20%.
While we understand the Pareto Principle as a broad business concept it has been used to understand human behavior and predict outcomes for over two centuries. Today, the Pareto Principle lacks specificity and is not useful for certain analysis, yet it still plays a role in modern business. Whether you have a dental clinic with ten providers, a firestone with eight mechanics or a sales force of 100 reps, the statistics will show that the bulk of the work (or revenue) is generated by a small percentage of the workers. Today, many organizations use this predictive phenomenon to create policy, train personnel and develop programs.
Early in my sales career, I was told that 20% of my clients would represent 80% of my sales activity. As a sales person, you want to grow your sales volume. So, a 10% increase in a 50K account would yield a $5K increase while 10% growth in that $8k account would only yield $800 in growth. In this scenario, if you earn 2% commission on the growth of those accounts. You would have made $100.00 form account A and $16.00 from Account B.
Clearly there is reason to invest more time and resources with the larger, engaged customers. Top accounts are more likely to buy or try additional items and services from you because they are committed to and trust your relationship. For dentists, this means the better patients who come on time, pay their bill and refer friends and family are also more likely to accept your larger treatment recommendations! This is known as the “Eureka Effect”.
Between the Armageddon of 2008 and a decade long consolidation of the dental landscape, I no longer subscribe to the 80:20 for planning and strategizing. My turning point moment was about two years ago when a dear colleague of mine (Patrick) won over a huge account from our largest competitor. It took two years and a lot of demanding work but he landed this customer’s business the old-fashioned way – He earned it! Six months into the relationship he visited the account on his three-week call cycle and was met with deep despair and sad faces. At that time, he was told by the office manager that they could no longer do business with him. The office had sold the practice to a national group who did their purchasing from a central location.
I believe there are natural laws that govern the universe. I believe in a strong work ethic, honesty and integrity. I believe talent truly matters but I have learned that sometimes your fate is determined by external forces that are out of your control. In my life, I embrace positive thinking and I believe that good conquers evil (eventually). I always root for the underdog and I believe that what goes around, comes around. I know that life, love and business aren’t always fair but Patrick’s experience was a warning sign and a turning point for me. This is when I determined that the 80:20 had a diminished R.O.I. (return on investment) and could no longer be used for my business.
I remember how bad I felt about Patrick at the time. I was a friend and mentor and had no words to comfort him or advice to give. Naturally, I began to doubt myself and wondered when this type of scenario would impact my business. What if I lost a client who had two or three or seven locations? This was the impetus for me to change the way I do business and inspired me to learn everything there is to know about group practice. I wanted the groups and entrepreneurial dentists to seek me out. I wanted to create a wave of attraction equal to the wave of loss that may be around the corner.
The 80/20 rule is not an algorithm and it is not a conclusive predictive tool. It does not account for trends and movements and cannot predict mergers and acquisitions. It does not anticipate, nor is it swayed by extreme market shifts creating leadership and consumer uncertainty. The disruption and disturbances caused by automation, consolidation and globalization requires all of us to behave more like warriors. It is not enough to have 20% of your clients or patients engaged. We must grow that number and strive to get all customers engaged! We cannot be complacent. We cannot wait for opportunity – we must create it.
Everyone has a responsibility to focus on winning, growing market share and creating impeccable customer service. Look at your business and isolate the opportunities. Sales people should put time and resources on customers who are committed to growth. Dentists must provide comprehensive dentistry while embracing the digital workflow. It’s a new year with so much opportunity to capitalize on.
All business entities will do well by taking a more global perspective of their marketplace. Reinvent yourselves, improve processes and be customer service oriented (treat customers like you want to be treated). Regardless of your business, always be improving and measuring your performance. Train your staff regularly and with intention. Stay focused on small but obtainable goals. This keeps you in the game, in the know and on a positive journey (trajectory).
In a simpler time, the 80:20 golden rule created a framework for analysis and target marketing. Today, complex algorithms and big data provide real-time information with reasonable certainty. It’s a game changer but many small businesses fail to invest resources in data management and analysis even though it yields a significant competitive advantage. Consider a subscription to a Dashboard or Enterprise system like Dental Practice Pro. It is a great tool for single practitioners and group practice. It provides you with actionable data on the practices strengths, weaknesses and opportunities.
Recently CVS health announced a bid to acquire the insurance giant – Aetna. According to the company, their goal is to provide a better customer experience while reducing costs and improving patient access. On the medical side, I expect that we will see a change in healthcare and homecare in the communities where CVS is a dominant player. CVS Pharmacy locations will include space for wellness, clinical/pharmacy services, vision, hearing, nutrition, beauty, and homecare medical equipment. This is in addition to the health and beauty aids and the other consumables they sell today.
Consider this example – A rural community has a huge employer who employs nearly 40% of the adult population within a ten-mile radius of their facility. In this scenario, that employer provides medical and dental insurance to their full-time employees with XYZ insurance. For many years, you have been a local dental provider for XYZ and the relationship has been fruitful. Unbeknown to you, that employer has switched its benefits from XYZ insurance to Aetna in the new year. The company believes CVS is omnipresent in the region and their employees will benefit from greater access and the new CVS/Aetna platform.
Over the next few weeks you notice that your production is down and you recognize a steady patient exodus from your practice. Quickly, you approach Aetna to become a panelist for their CVS/Aetna PPO. The good news is that Aetna accepts your request but it still might be too late to stop the bleeding. Aetna agreed to add you to the provider list on their website (could take a few weeks) but the employee insurance packets were mailed out on the first of the year and you were not listed.
The takeaway from this vignette is that everyone must be focused on their business and should become a fan of their industry. Knowing what’s happening in and around your community provides valuable information for you to use to navigate your future. Do you think other drug store chains or healthcare companies will merge or acquire insurance companies? Is Walgreens talking to MetLife?
Dentists must rethink their growth strategy and embrace analytics. They must work on multiple aspects of their practice simultaneously with an emphasis on execution. Way too many processes are operating at subpar performance in the dental office. Treatment plans are not entered into the system and those that are, remain dormant in the charts. Millions of dollars of needed and elective treatment are presented but doesn’t get done. In many cases, these patients have the capacity to pay for the work or their insurance will cover or subsidize a portion of it. The offices failure to execute on these opportunities suggests a lack of will, leadership or skill set. The same goes for patient reactivation, confirmation, insurance verification and third-party patient financing. I have witnessed how a lack of skill, organization or interest, impacts production.
This coming year will bring new challenges and opportunities for all of us. For those of us in distribution, we will remain focused on our traditional business while expanding our digital footprint. We will leverage our knowledge, experience and services to ward off the competition, hold margin and attract the emerging group business. For the dentist, 2018 will be a continuation of the past few years. Dentists will focus on their digital relevance (technology acquisition and integration), marketing, operations and the patient experience. They must act decisively and be cognizant of the fact that their business is predicated on patients visits and operatory turnover. All dental teams should recognize elective opportunities and FFS patients when they see them. It is time for all dental facilities to address clinical staff turnover. Consider providing medical benefits or a retirement fund (401K or profit sharing) to your compensation package to end the cycle of staff turnover. The interviewing, hiring and training of personnel may be costing you more money than the added benefits.
Happy New Year! Best wishes for an amazing 2018!