Pareto's Principle

Pareto's Principle

By: Christine Hollinden

You’ve most likely heard of the Pareto Principle, commonly referred to as the 80/20 Rule. Italian economist, Vilfredo Pareto observed that eighty percent of Italy’s wealth was owned by twenty percent of the people. More than one hundred years later, the Pareto Principle has become a powerful tool applied across organizations, reminding us that input and output are often not balanced. With the first quarter of 2013 complete, contemplate this simple question: “Are you focusing your efforts on what will have the most impact or are you spinning your wheels chasing small issues that are never resolved?”

Applying Pareto's Principle as a management effectiveness tool can be a stunning awakening or a confirmation of how every facet and profit center of your firm operates. Examine your company's efficiencies from all perspectives. Think about these additional questions:

  • Who are the top clients that account for 80% of revenue?
  • Why do those top 20% hire your firm?
  • Which services have produced the majority of your firm’s growth?
  • Which service lines produce the greatest amount of profits?
  • Where is the majority of your business development budget being spent?
  • Which efforts produce the greatest results?
  • Who or what generates the majority of new business?
  • How much non-billable time is spent on revenue generating or business improvement activities?
  • How much of your day is spent on trivial matters?

Thinking about this now will save you from having to ask at year-end, "Why did we spend all that money and get so few results?" It’s time to focus. Make a list of the most important things you do for your clients – the things that add the most value. Crank up the service around what’s most important to your top clients. Reallocate your firm’s time and resources to attracting more clients just like the most profitable ones. If certain service lines are not producing solid returns, fix them or drop them. If your marketing-to-sales ratio is out of whack, realign the marketing tactics now. Then, focus your time, dollars, and resources on only what matters – that top 20% – and let the rest of 2013 be about maximizing profits.