Let’s talk Pareto
Pareto is many things. For starters, he is, or was, an extremely smart Italian dude. Vilfredo Federico Damaso Pareto (I have an envious name) was a prominent economist, sociologist, philosopher and political scientist of the early 20th century. He has a rich and interesting heritage that I won’t go into here; suffice it to say that in the afterlife that awaits Italian economists, he is probably a little miffed that his main legacy is a simple, one-size-fits-all rule.
On the other hand, another of his legacies is that his work had a key influence on the economics of fascism, so maybe he’s good with the rule.
That’s good, because it’s a good rule, even for us non-fascists. I assume you are not a fascist. If you are a fascist, fight. The rule, the Pareto principle, is simplicity itself:
about 80% of the effects in a given system come from about 20% of the causes.
He invented it after noting that 20% of the pea pods in his garden contained about 80% of the peas, then doing extensive investigation and discovering that in the Italy of his time about 20% of the people had about 80% of the earth.
First, let me note that the discovery of peas was integral to the invention of modern economics as well as genetics somewhat unsettled me. What else do peas know that we don’t? If you are a pea, write. I have questions.
Second, a principle that applies with equal precision to peas and land ownership is either a) a huge coincidence or b) a really big deal.
It is not a coincidence.
The Pareto Principle holds true in a number of really scary situations. Companies have started using Pareto as a rule of thumb, predicting that 80% of sales come from 20% of customers. They are almost always right. Technicians expect around 80% usage of around 20% functionality. Again, generally correct, and leads to 80% failures coming from 20% bugs and 80% complaints coming from 20% users. Pareto is everywhere.
Obviously, the real job is not an economics textbook.
The numbers are rarely so clean. But Pareto is often right enough that one group, in particular, can benefit from making it an a priori rule of thumb: salespeople.
Estate agents benefit above all from a quick dose of Pareto
It all started with peas and soil, remember? The Pareto principle was literally made for real estate. The American genius has already explained how Pareto applies to leads, but it’s even more relevant to time management and legwork. The secret to real estate success isn’t scoring those golden slopes in Glengarry. This is to identify your 20%.
It’s almost ridiculously easy to do and very, very easy to overlook. Review your numbers and see:
- Who bought the most?
- Who bought the most expensive?
- Who bought most recently?
Find the overlap, the candy core of the Venn diagram. It’s your 20%. It may not be 20%. It can be 50% (fair!) or 5% (better hustle!). But anyway, that’s where your money lives. Pareto at his worst – well, I covered the fascism stuff. But at its best, Pareto is Occam’s razor, monetized. It goes straight to where your money is coming from and where your efforts are therefore better spent.
Go ahead and count the peas.