The Pareto Principle As Applied To Cafés
According to Wikipedia, the Pareto Principle (also known as the 80-20 rule, the law of the vital few and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. It is a common rule of thumb in business; meaning, “80% of your sales come from 20% of your clients.” How do this rule apply to your situation as a café owner?
Take out your data, look at the figures and see if Pareto Principle applies to your case. I am sure many of the factors affecting your business are within the 80-20 rule of the principle. It may not be exactly 80-20 but the ratios should be near the figures. As such, look at the following situations and conclude for yourself which ones apply to your café business.
- Eighty (80%) of your revenues comes from PC rental while the other twenty (20%) is derived from your other services like printing, scanning, e-loading and the like.
- The bigger bulk (approximately 80%) of your revenues comes from students of minor age while the balance of 20% are from customers of majority age.
- If your café offers gaming and internet surfing and research, chances are 4 out of 5 (80-20 ratio) among your customers are gamers.
- On the part of your expenses, you would notice that should you decide to cut costs, only 20% of them can be controlled by you. The other 80% of your expenses are for electric consumption, telephone and DSL service, water usage and space rent, all of which, the rates are mandated by your suppliers of the services.
- Most of the time, 80% of your computers are working perfectly at anytime while the other 20% requires the attention of a technician.
- Lastly and hopefully applicable to you, at the minimum, 80% of your revenues covers your expenses and leaves 20% for your profit.
The above and many more like 4 out of 5 cafés are personally tended and managed by its owner and that 4 cafes out of 5 are barely breaking even (hopefully not, it should be the reverse; meaning only 1 of 5 is losing money) are proofs that the Pareto principle really apply to café business. How then will knowing these facts help you in your business? Let’s see if we can answer this question in my future blogs.