The 1% Rule
"The 1 Percent Rule states that over time the majority of the rewards in a given field will accumulate to the people, teams, and organizations that maintain a 1 percent advantage over the alternatives. You don't need to be twice as good to get twice the results. You just need to be slightly better." - James Clear
If businesses want to win in their marketplace, they need to orient their fundamental business objectives to be at least slightly better than those same tools used by their competitors. The 1% principle outlines that in the competitive marketplace, the business that wins on a key performance metric will reap most of the rewards from that victory, even if the victory was marginal.
There are many examples of this principle that can intuit from our daily experience of life. All other things being equal, if a business is able to win on pricing, even if they are only 1% lower than their closest competitor, they will likely reap all the rewards as the cost leader in the market. If one key employee is 1% more efficient than the rest, he or she should be first to be promoted.
Businesses should approach the entirety of their financial management operations with this 1% Better approach. Here are 3 ways to be 1% Better than your competitors with your financial management:
1) Segment all revenue and expenses by key categories. Whether these categories are based on customer demographics, location, product, department, or another key category for a business, all businesses should be tracking this data in their key categories.
2) Harness financial analytics to guide business investment. Whether that investment is opening a new shop, a new division, or just your owner's time, maximize your existing financial data to guide your most important strategic decisions.
3) Track key financial ratios and metrics to fully understand financial performance. Don't become tunnel focused on one financial measure such as increasing sales. Take an aggregate view of the business by tracking all key metrics that pertain to profitability, liquidity, solvency, other measures of financial health.
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Cloonan & Associates, PC is a full service public accounting firm based in the Pittsburgh area but serving clients nationally, including in Charlotte, NC, Denver, CO, and Salt Lake City, UT. We invite you to reach out to us to discuss how can serve you and help you accomplish your business objectives.
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