Pareto’s Principle, or the 80/20 Rule

In 1906,  the economist and sociologist Vilfredo Pareto examined wealth distribution in Italy and found that 80 % of that nation’s wealth was controlled by 20 % of the population.  (In the U.S. as of 2009,  the top 5 % of the population controlled 63.5 % of the wealth and the bottom 80 % controlled 12.8 %.  Source: The Economic Policy Institute Briefing Paper # 292,  March 23, 2011)  Pareto dedicated his career to exploring the nature of individual and group social action,  along with studying the distribution of wealth in society.  Pareto’s discovery came to be known as Pareto’s Principle,  colloquially known today as the 80/20 Rule. 

Pareto determined mathematically that while numerous factors are connected to any given outcome,  only a select few are able to impact that outcome in a significant way.  Anecdotally,  I think most would agree that the principle holds up in real life.  The 80/20 Rule has been widely applied in business and several truisms have been noted, including:

  • 80 % of your sales are generated by 20 % of your customers
  • 80 % of your profits grow from 20 % of your working hours
  • 80 % of your sales come from 20 % of your product/service line
  • 80 % of customer complaints emanate from 20 % of your customers

Are you trying to get in the door with certain clients who will award to you the projects and billable hours that will allow you to achieve your profitability goals?  Of course you are!  Maybe it’s time to apply the science of Pareto’s Principle to the pursuit of an expanded client list and limit the randomness of networking and prospecting.  As Pareto discovered,  it’s vital to identify those critical few variables that provide the majority of leverage,  or problem-solving power,  when trying to achieve objectives.  In this assignment certain assumptions will be made,  such as the strength of your value proposition and your understanding of who would be an ideal client.

Get the critical few variable identification process started by listing all possible factors that influence your ability to sign a client.  Next,  pare the list down by filtering out the “trivial many”,  as Pareto termed factors that will have minimal impact on the desired outcome.  You’ll end up with about a half dozen critical variables,  powerful factors  that when impacted,  i.e. leveraged,  in the right fashion by the right person will influence the outcome and get you an audience with the decision maker who can award you a plum contract.

Ponder the critical variables on your priority list.  They have the power to either clear your path or block your success indefinitely.   Which critical variables,  if any,  might you be able to leverage on your own?  Which are beyond your reach and require the intervention of an ally?  Are any variables likely beyond the control of anyone save the client?  When you’ve determined which critical variables might possibly be leveraged by either yourself or an ally,  then consider carefully which of those factors will be most easily leveraged and how you should proceed.  You’re looking to leverage 20 % of the critical 20 %,  if you know what I mean.

On my priority list,  there are seven items.   Three critical variables appear to be within my control or that of an ally and four appear to be outside of my ability to impact  (including budget limitations).  Introductions and endorsements to the right people are both my barriers and critical success factors and I see a possibility for leverage.

Over the past 6-8 weeks I’ve had two endorsement/introductions to potential clients,  plus a promise from an influential advocate to try to help me resuscitate a client relationship that derailed because of competing organizational priorities and budget limitations.  At the end of July,  I will attend a conference where I hope to meet a certain prospect and I hope that the right person introduces us,  i.e. someone my prospect knows well and who will provide an endorsement for me.   I am working the 80/20  Rule,  planning to leverage critical variables wherever possible.  Wish me good luck!

Thanks for reading,

Kim

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