What to Look for In an 80/20 Quadrant Analysis

What business insights can an 80/20 Quadrant Analysis generate? Read this blog post to find out.

Below is a representative quadrant analysis that is typical of results I’ve seen over the years.

Here are some things to look for in a Quadrant Analysis:

In the example above, this is the green numbers, i.e. sales of $9,771k.
This is your money making quadrant.
% of sales greater than 64% is pretty healthy.
If you compare year on year sales, you’re looking for growth in this quadrant.
Key Point: COGS does not reflect the cost to support this product. Typically, each quadrant consumes roughly 25% of your fixed (SGA) costs. So in the example above, a portion of the business that chews up 25% of your SGA but generates >64% of your business is where you generate cash. Period.
Look at margin. Your margins here must be acceptable.
Your marching orders are simple: More of this please.

In the example above, this is the orange numbers, i.e. sales of $2,233k.
This quadrant is your best customers insisting they buy low volume products.
Sales less than 16% is pretty healthy.
Key Point: COGS does not reflect the cost to support this product. Since each quadrant consumes roughly 25% of your fixed (SGA costs), and generates 16% of sales, this isn’t a very healthy business upon which to build a growth plan.
Your marching orders are simple: Do what you have to do to satisfy that important customer. No more. If possible redirect to a better product. This is a necessary evil.

In the example above, this is the lower left set of numbers in black type, i.e. sales of $2,343k.
This quadrant represents the least important customers buying your best products.
Sales less than 16% is pretty healthy.
Key Point: COGS does not reflect the cost to support this product. Since 25% of the fixed costs (typically SGA) and generates 16% of sales, this isn’t a very healthy business upon which to build a growth plan.
Your marching orders are simple: Accepting orders in this space is great (because you’re adding manufacturing volume to your best product) if you keep the transactional costs and sales support costs to the absolute minimum.

In the example above, this is the lower right set of numbers, in red type, i.e. sales of $594k.
This quadrant is your worst customers buying your worst products.
Sales greater than 4% is a major problem!
Key Point: COGS does not reflect the cost to support this product. 25% of your fixed costs (typically SGA) are getting consumed to support 4% of sales. Building a growth plan on this aspect of your business is profoundly ill-advised.
Your marching orders are simple:
- Just say no.
- Accept the order only on terms that work for you. Long lead times. Huge Prices.
- Never disrupt your core business to support this business.
- Redirect the purchase to a better product or a bigger customer.

The key admonition is to drive as much business as possible to the intersection of your best customers buying your best products.
The smallest customers buying the worst selling products are consuming disproportionate resources and are likely costing a business money.