Rule of 95/5
Scrutinize 95% of spending to fund the 5% customers never forget
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 99%
The Rule of 95/5 divides spending into rigorous operational discipline and deliberate experiential investment. The business scrutinizes every penny across roughly 95% of its budget, because many tiny savings accumulate into substantial resources. That discipline earns the right to spend the remaining 5% in ways that may look foolish under conventional efficiency metrics but create exceptional memories for customers or employees. Examples include a dedicated experience-design role, an unexpected personalized gesture, or an extravagant team celebration. The mechanism is long-term amplification: memorable experiences become stories, stories produce ambassadors, and those ambassadors market the business with credibility that paid promotion cannot easily match. Because the return is difficult to calculate precisely, leaders assess both financial health and relationship indicators rather than assuming that anything unquantified has no value.
Origin
Guidara used the Rule of 95/5 to finance unreasonable hospitality at Eleven Madison Park while maintaining strict control over ordinary restaurant expenses.
Core principles
- 01Small savings accumulate into meaningful capacity.
- 02Financial discipline earns room for memorable investment.
- 03The final 5% should create stories and relationships.
- 04Hard-to-measure returns can still be strategically real.
- 05Memorable experiences can outperform traditional marketing.
How to run it
- 1
Define the disciplined 95%
Identify the majority of operating expenses that should be managed with rigorous efficiency.
Pro tip Include small recurring costs because accumulated pennies can become substantial.
Watch out Do not cut expenses that protect safety, legal compliance, or core quality.
- 2
Remove ordinary waste
Study each expense and capture savings that do not damage the essential product or team.
Pro tip Review processes as well as vendor prices.
Watch out Indiscriminate cost cutting can create larger downstream costs.
- 3
Protect the experiential 5%
Create a bounded pool for memorable customer and employee experiences.
Pro tip Treat the fund as a strategic allocation rather than leftover money.
Watch out Do not allow routine overspending to consume the protected pool.
- 4
Spend with specificity
Use the fund on gestures, roles, or celebrations that generate distinctive emotional value and stories.
Pro tip Choose investments people will naturally want to describe to others.
Watch out Generic extravagance may cost more while producing less impact.
- 5
Evaluate broad returns
Observe word of mouth, referrals, loyalty, recruitment, retention, and the stories people repeat.
Pro tip Combine quantitative indicators with recurring qualitative evidence.
Watch out Difficulty measuring an outcome is not proof that every experiential expense works.
In the wild
Eleven Madison Park tightly managed ordinary expenses but used part of its experiential allocation to employ a Dreamweaver whose job was to help the team bring personalized ideas to life. Hot dogs and extravagant employee holiday parties also fell inside this deliberately less conventional spending category.
→ The restaurant created customer and employee stories that generated loyalty, advocacy, and marketing value.
Common mistakes
Being careless with all spending
The memorable 5% is only sustainable when the remaining budget is managed with exceptional discipline.
Cutting the memorable 5%
Optimizing every expense solely for immediate efficiency removes the investments that can differentiate the business.
Confusing expense with impact
The objective is not extravagance itself but specific experiences people remember and retell.
Is it for you?
Best for
It is best for businesses that need disciplined margins but also want customer experience to become a competitive advantage.
Not ideal for
It is not ideal for insolvent businesses that cannot yet meet payroll, taxes, safety obligations, or core service standards.
From the transcript
“What it means is you manage your money like a frickin maniac 95% of the time.”
“But you do that in order to earn the right to spend the last 5% of your money foolishly and foolishly in air quotes.”
“Every dollar I ever spent on unreasonable hospitality, it was far more impactful than any dollar I ever spent on traditional marketing.”
From the episode
Unreasonable Hospitality: What It Takes to Be Number One in Your Industry with Will Guidara
Will Guidara