The 80/20 rule

Anyone with a background in sales is probably familiar with the Pareto Principle, also known as the 80/20 Rule.

In 1906, Vilfredo Pareto from Italy made an observation that nearly 80 percent of Italy’s land was owned and controlled by nearly 20 percent of the population. This finding led him to explore other countries where he noticed similar situations. This principle has then been applied to multiple areas like software, business, marketing, and more.

For personal sales

In sales the principle states that just 20% of your effort leads to 80% of your results.

You can imagine the leverage you’d gain by knowing which 20% of your effort will get you those results. The best accounts are said to be almost twice as likely to close, however the challenge is knowing on which accounts to invest our time? AI could perhaps help with that by providing the latest data or buying signals so that you can target the right accounts, maybe also provide recommendations and even the most appropriate channels to reach them - that is science and the 80/20 rule.

For your business

80% of sales are made by 20% of sales reps? Which may or may not have implications for your sales talent. Do you fire the 80% and go about finding another elite 20% or do you recognize the gap and find ways to increase the performance levels of the 80% so all reps are high performing?

How to increase performance levels?

According to an article in the Harvard Business Review, a scientific approach to improving sales effectiveness can increase productivity in salespeople in the lower "80%" by up to 200%. Top performers benefit from a science-based strategy too, with an average productivity increase of 50% across the entire salesforce. AI-enabled sales support can keep the 20% of the salesforce that carries 80% of the revenue generation performing at high levels, while bringing the 80% of sales people who underperform up to speed. Companies that adopt AI tools could possibly close the 80/20 gap or more likely raise everyone's performance - "a rising tides raise all boats" approach!

Is the 80/20 ratio accurate?

80/20 has become accepted wisdom but is it true, is it accurate? Maybe not, maybe its 85/15 or 70/30 but does the lack of accuracy invalidate the idea? Well it does if you take it too literally or you don't know what is the 20% and what is the 80% and AI can not help you. Then it can lead to problems through poor decision making, or a poor allocation of resources. However as a framework for thinking more about what the big levers are - what are the most important things that generate the most results - it surely has its uses.

The Matryoshka (Russian) Doll theory?

If 80% of the results come from 20% of the people, why stop there? Surely you can take it to another level and 80% of the results from the top 20% of the company then come from 4%? Inside the 80/20 is another 80/20 and so on...how far can you go?

Well you take it as far as it is useful. If you hire 100 sales people, 20 people do 80% of the business and then take it further 4 sales people will generate 64% of the business. So 16 people (of the 20%) are important, but the remaining 4 are very important and the rest, 80 people (80%) seem unimportant. Again what are the implications here?

In a more personal example if you think of your own time management. In an average 8 hour working day (480 mins). 20% of your time (96mins) would provide 80% of your output. That is worth knowing, you could allocate 96 mins, or one and half to two hours in the day to the best part of the day to do your best, most productive work. And in theory that should generate the best results.

Taking it a stage further would mean 20% of that time, 10 mins of your day, generates 64% of the output or value. I am not sure how valuable that is, how did you find that 10 mins, is the 64% worth focusing on exclusively? I imagine not, nobody wants to give up 36%, nearly 40% of anything!

What about that 80%?

Even if it were true and you focused more time on the top 20% of your accounts, it ignores the fact that one of the bottom 80 could become a top 20 if they were nurtured. And some of the top 20% may not be a constant, they may change from time to time, so you have to replace them, especially as they are so significant. Which means you must be constantly on the alert for your new member of the top 20. Also who wants to give 20% or their sales or business anyway? In my experience sales people want all the business and don't want to give up on or lose any sale - I know that's how I feel. 20% of your sales or business is still significant. You may want to identify your best customers and look after them more, prioritize service to them, maybe discard some, spend less time on some - but maybe not ignore entirely. If you do have to let some customers go, its difficult - you should realize this change of mindset or culture could take time

I know in my case I would find it difficult to let go of 20% of my business, business is so hard to get, whether small or once big customers it feels a wrench to let some go. However sometimes you have to recognize you have to focus or prioritize. That is what the best sales performers have always done. Think of a holiday you are about to go on, you have a check list of things to do before leaving the office - you can't possibly get them all done. What you do is focus on the most important tasks, the 20% that maybe makes the most difference - and at the end of the day you often go on holiday thinking "wow I actually got a lot done today...I should do that every day when I am back from my holiday". In that example we have probably used the 80/20 rule without even realizing it - that suggests that the 80/20 rule does have value!