Vilfredo Pareto – born in Paris just like I was and that’s where our similarities end. Amongst many other achievements during his career, his observation that, in Italy, 80% of the property was owned by 20% of the population became the foundation for the Pareto Principle which states that, for many outcomes, 80% of the effects come from 20% of the causes.
When I first heard of this, I set about exploring how many scenarios in my life this applied to and it was eye-opening – try it yourself.
As I was just starting out as a manager in the workplace, I applied the principle to our sales function and I continue to use it as a means of measuring performance, highlighting what’s working well, understanding the risks and being clear on what’s needed to improve quickly!
80/20 is a typical standard which reflects an adequate balance of performance and risk. If the % of effects increases without the % of causes increasing too, that’s typically an indicator there’s an issue. If the % of effects decreases and the % of causes stays the same or increases, that’s typically an indicator of progression.
If you’re running a sales function, these are some of the ways I use the 80/20 rule to understand what’s going on:
How much of our overall invoices come from what % of our active customer base?
Anything more than 80% coming from 20% is a very risky position for your business as it clearly indicates you are too reliant on the business of a very small portion of your overall base (could even be just 1 customer). If, for some reason, they stopped being a customer, the data shows it would have a disastrous effect on your business. How can you reduce this overreliance? ENSURE YOU ARE MAXIMISING ALL OPPORTUNITIES WITHIN THE REST OF YOUR ACTIVE CUSTOMER BASE AND, CONCURRENTLY, BUILD A PROCESS FOR GROWING YOUR BASE WITH NEW CUSTOMERS.
How much of our overall results come from what % of the sales team?
It’s pretty much identical to the above; anything more than 80% of your results coming from 20% of the team highlights a risky situation for your business even more so if the % of where the results come from is less than 20%! What happens if your top performers leave? I can 1000% promise you they’ll know how important they are to you but please don’t kid yourself into thinking it isn’t risky because they’d never leave, never ask you for more or never be tempted by a better financial offer elsewhere. Take action to reduce your dependency on the 20% by ensuring you’re doing everything you can to develop the rest of the team (whilst knowing when to draw a line and call it a day with those who aren’t right) and, if space and budget allows it, growing the team with new additions.
Where is time best spent?
Are 80% of your results coming from the activities that take up 20% of your time spent focusing on achieving the specific results? If so, what’s going on with the other 80% of your time?! Can understanding this help you make changes to your scheduling meaning you spend more time on productive activities which directly correlate into enhanced results? It’s not impossible to get to a place where 100% of the results you achieve are because of the activities that you spend 100% of the time put aside to achieve the specific results.
Out of your complete portfolio of offerings, what contributes towards your overall results?
The standard being that 80% of your results will come from 20% of your complete offerings. That gives you the clarity on what to maximise focus on whilst also helping you understand what’s just not working and either needs more attention or just needs dropping.
Territory and/or vertical focus
If 80% or more of your business comes from 20% of the territories you cover, that gives you clear data to ask yourself 2 questions. #1 – are we engaged with 100% of the opportunities in the regions that currently dominate our results? #2 – does this mean we’re missing out by not focusing more attention on other territories or are we actually wasting our time chasing dead ends?
If you don’t already use the 80/20 rule for assessing your sales efforts, see how the above look when applied to your data. As a general rule, if more than 80% of the effects is coming from 20% or less of the causes – that typically signifies something that needs urgent attention because, until rebalanced, your business will be at serious risk.
I’ve been at the mercy of 1 or 2 big spending customers who have leveraged that by forcing me to accept extended payment terms and I’ve worked in sales teams where the big hitters have become a law unto themselves knowing that they can get away with it all the time they’re delivering results. If you find yourself in either/both of these situations or you’re keen to take action now so as to mitigate the chances of being in either situation, request a confidential call back on our website and we’ll be speaking soon enough.
