I have to confess that I was 25 years old before I discovered Vilfredo Pareto and whilst I cannot claim that I experienced an epiphany of “Damascus Highway” proportions, it did cause me to make fundamental changes to the way I organized myself. I think even at that young age, I knew precisely what I wanted to achieve both in my commercial life and, indeed, my personal life – it was simply a question of re-adjusting my 80/20 balance.
In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that 20% of the people owned 80% of the wealth.
Where It Came From
After Pareto made his discovery and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s, recognized a universal principle he called the “vital few and trivial many” and put it down in writing.
As a result, Dr Juran’s observation of the “vital few and trivial many”, the principle that 20% of something always are responsible for 80% of the results, became known as Pareto’s Principle or the 80/20 Rule.
What It Means
At a very basic level, you know that 80% of sales will come from 20% of the sales team. 20% of staff will cause 80% of the problems, but another 20% of staff will provide 80% of the production – it works both ways.
How It Can Help Us?
The value of the Pareto Principle for all of us is that it reminds us to focus on the 20 % that matters. Of the things we do during our day, only 20% really matter. Those 20% produce 80% of our results and we should identify and focus on those things. If something in the schedule has to slip, if something isn’t going to get done – we should make sure it’s not part of that 20%.
Digging a Little Deeper
When thinking about the overall annual performance of a sales team, the harsh reality is that only 20% typically smash their targets – these are the “sales superstars”. Of the remaining 80%, 30% just scrape through – rather like a high jumper just grazes the bar but gets over. That leaves a significant 50% who fail, often quite miserably, year after year. The reasons are numerous but right now, much of my work is focusing on sales leadership because, not only are these people critical to the overall success of the company’s engine room – the sales team – most are in a very precarious position. They are relying on their “super achievers” to over-perform in order to make up the deficit of the rest of the team. But what if a few of the best left? Total vulnerability!
In fact, there is a management theory floating around at the moment that proposes to interpret Pareto’s Principle in such a way as to produce what is called ‘Superstar Management’. The theory’s supporters claim that, since 20% of your people produce 80% of your results, you should focus your limited time on managing only that 20% – the ‘superstars’.
The theory is flawed because it overlooks the fact that 80% of your time should be spent doing what is really important. Helping the good become better has to be more effective – in the medium and long-term – than helping the great become terrific.
Thinking About the Wider Sales Space
You will know that 80% of what you read, hear or witness is dedicated to lead generation, winning new business, prospect attraction, etc. It is all about cold calling, social selling, email marketing, inbound, outbound – in other words, hunting. It has become an obsession.
That logically means only 20% of a company’s efforts (here 20% is probably very generous) is dedicated to managing, developing, consolidating existing customers. And yet we know that 80% of a typical commercial organization’s revenue, every year, will arrive from those same existing customers. Total madness!
Unfortunately, there is no consolation for any sales leader reading this – 80% of your sales teams are incapable of sustaining long-term relationships because they are commercially promiscuous. They would much prefer to close the deal and then move on to the next shiny, bright new opportunity, leaving that newly acquired customer to fend for themselves – after all, they will call us if they need to buy anything else, won’t they?
Actually, no! At any given time, almost 80% of buyers would be receptive to changing suppliers. They don’t necessarily want a better deal, more discount, greater value – although all of that helps. They want to feel valued, respected and loved. They want to do business with a company that is prepared to work hard to earn the right to their custom.
In summary, I would say this: You can apply the Pareto Principle to all that you do, but my advice is to use it wisely. It should serve as a daily reminder to focus 80% of your time and energy on the 20% of your work that is really important. Don’t just “work smart” – work smart on the right things.