What’s Wrong With 80/20

Pareto, while brilliant, forgot one important point.

If you’re familiar with the 80/20 rule – credited to Vilfredo Pareto, the 20th Century Italian economist – you’ve probably committed that line of thinking to memory. 80 percent of the money is made by 20 percent of the people. 20 percent of your clients will bring in 80 percent of your revenues.

In fact, you can read about the 80/20 rule in this post from Online-Social-Networking.com and Larry Brauner.

And Larry’s a smart guy, so I won’t argue with the basic premise – and how it applies to social media marketing. There’s also something to be said for how it applies to Holistic Social Media, too.

But here’s the thing: just because one column is “80” – doesn’t mean the other column is “20.”

It’s not a requirement that the two columns add up to 100. In fact – they often don’t.

Think about a consulting firm that brings in 1 Million a year, and has 3 big clients and, let’s say, 22 small ones. And the 22 small clients are each tiny engagements – $1000 each. The rest of the revenue comes from the other 3.

Revenue: 1 Million. Revenue from 3 big clients: $978,000. Revenue Percentage: 97.8. Percentage of firm’s clients: 12%.

This is a classic “97.8/12” business. (That adds up to 109.8.)

And just because 12% of your business brings in 97.8% of your revenue – does that mean the other 2.2% should be abandoned?

What if the 2.2% serves as a proving ground for junior staff? What if the tiny revenue stream is also insanely profitable, high-margin work – perhaps something that can be replicated, scaled, sold again and again?

Something to think about…as you build your business.