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.
- Some clients take most of your time and don’t spend much money
- Other clients love what you do and want more of it (they’ll also become evangelists)
- Focusing your efforts saves time and increases profits
Consider how you could serve the few rather than the many. While working harder is easy to apply, dabbling in fractals yields better results.
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