For some reason, we can’t quite let go of the idea that earning more money is all about working harder. If this were the case, people with multiple physical jobs would be millionaires. Even those of us with less arduous occupations are tempted to push ourselves to the limit. We’re masochists who think sleeping less and labouring longer is the answer. There is a better way.
You’ve probably heard of the Pareto Principle, which states that 80% of results come from 20% of causes. In 1895, economist Vilfredo Pareto discovered that in Italy 80% of the land was owned by 20% of the population. Since then, Pareto’s discovery has been applied in many contexts, most notably business.
While I was aware of the axiom that 80% of business comes from 20% of our clients, I hadn’t applied it with any great rigour. Perry Marshall’s book 80/20 Sales and Marketing completely transformed my thinking by pointing out that the principle is also fractal – that is, you can apply the principle again to that 20%, and again. Here’s an example:
Say you have 100 clients and an annual turnover of £50,000. Just 20 of those clients will be responsible for £40,000 of that income. The other 80 clients are taking up a lot of your time and only generating £10,000 each year between them. Undoubtedly, a few of them are a complete menace, too.
If you now look more closely at those top 20 clients (who you now love even more), you’ll discover the 80/20 principle in action again. Of those 20 people giving you £40,000, there are probably 4 who are paying you £32,000. Even within that tiny group, there could be a star client who’s paying your mortgage.
Once you understand who’s buying most of your products and services, you can better address their needs. They love your work, so they want more opportunities to spend money with you. Don’t try to please everyone, just those superfans.
Consider how you could serve the few rather than the many. While working harder is easy to apply, dabbling in fractals yields better results.
You won’t often hear a financial coach advising you to spend more money. There are some instances, though, where splashing the cash is the answer. For me, it’s for anything that saves time.
Of course, it’s important to keep a careful eye on money, but our time is even more valuable. Although it might not feel like it, money is a renewable resource – if we lose some, we can usually find a way of getting it back again. Time, conversely, is absolutely finite.
Consult any guide on saving money and it’ll undoubtedly recommend taking a packed lunch to work. I’ve tried this myself, with the following results:
A significant chunk of my headspace was occupied with lunchtime logistics. I’ve now accepted the need to outsource my lunch. This saves me valuable time, I enjoy a wider range of food, and it makes me get off my bottom and go outside.
Admittedly, I’m in a fortunate position of having the money to spend on lunch. Even if you’re on a tighter budget, buying your lunch once a week might free up a block of time and provide a well-deserved treat.
Maybe lunch isn’t a problem. Are there other areas where you could invest some money and receive a time dividend? Getting a cab? Having groceries delivered? Hiring a freelancer?
If you want more money, first you need to carefully consider how you spend your time.