Debunking the 80/20 rule

Lynette Ott, the practice manager at Barton Heights Veterinary Hospital in Stroudsburg, Pa., always heard that 20 percent of clients bring in 80 percent of income. Not content to blindly adopt the mantra, Ott went looking for data.

Using the year-to-date (YTD) sales for each client from Jan. 1 through Aug. 4, 2004, she ran a summary report, calculating 80 percent of the total goods and services sold. Then she ran a list of clients who visited during this period in descending order by amount paid, adding up all the YTD sales and stopping with the top 20 percent of clients.

"We found that 20 percent of our active clients, or 670 clients, generated only 51 percent of the income during that time frame," Ott says. With more digging, Ott found that her team needed about 44 percent of clients, or 1,457 pet owners, to generate 80 percent of the practice gross. "The numbers just didn't add up," she says.

The hospital team confirmed the results by re-doing the study using the first three months of 2005. They found that 20 percent of clients generated about 49 percent of year-to-date income for 2005, proving Ott says, that the long-held belief may just be a myth.

Want to figure out what percent of your clients account for 80 percent of your hospital income? In an Excel spreadsheet, list all clients in column one and the amount they spent last year (in descending order) in column two. Next, go down that second column, adding cumulatively, until the total represents 80 percent of your hospital's gross. Then simply calculate what percentage of your total client base that represents.