Pareto s Law

Pareto's Law

Do you know about the 80/20 rule? The 80/20 rule says, "Eighty percent of all goods and services sold are sold by 20 percent of the people who sell those goods and services." Italian economist Vilfredo Pareto discovered the 80/20 rule in 1897. Sometimes the 80/20 rule is called the Pareto Principle or Pareto's Law. Whatever you choose to call it, the 80/20 rule is pretty much true of just about everything. Eighty percent of all the goods are produced by 20 percent of the manufacturers. Eighty percent of the laws are proposed by 20 percent of the lawmakers. Eighty percent of the world's resources are used by 20 percent of the world's population. Twenty percent of the criminals commit 80 percent of the crimes. I'm sure you get the idea.

Some years ago Tom Simon was the CEO of Capital Holding Company. Capital Holding is now owned by the financial services giant Aegon. At that time, Capital Holding Company owned several insurance companies. Tom told me that his company conducted a survey to explore the 80/20 rule, believing it could have a major impact on its sales efforts. The company knew that 20 percent of its agents accounted for 80 percent of its sales. The company wanted to figure out why such a small percentage of its sales force accounted for such a large percentage of the company's annual sales. The first discovery was that 80 percent of the 80 percent of insurance that was sold was sold by 20 percent of the 20 percent that was selling insurance. The 80/20 rule even applied to the 80/20 rule. Do the math. The company's research showed that 64 percent of all the insurance being sold was being sold by 4 percent of the insurance salespeople. What could the 4 percent be doing that was so different from the rest of the salespeople?

The insurance company spent a great deal of money eliminating criteria that was not responsible for the success of the 4 percent. The elite 4 percent were not smarter, nor were they better educated. They were not younger or older, and they didn't come from better families or come from bad families. In fact, the survey uncovered nothing. Ultimately, Capital Holding sent a questionnaire to the very productive 4 percent. The questionnaire asked, "What are you doing that allows you to sell so much insurance?"

The first thing the survey revealed was that each of the salespeople that were in the 4-percent group could name at least 100 specific things they labeled as a sales technique. For example, one salesman said he only used a Mont Blanc pen to sign contracts. He said he used "an expensive pen because it makes every deal look like a big deal." Big deal! Another salesperson said he always used a cheap Bic pen because it made him look like the low-overhead price leader.

One salesman said that he always had business cards with him and another said he never carried business cards. The man who never carried business cards said, "If I give someone a business card, they say they will call me, but they never do. I tell them, ‘I don't have a card but I'll call you."’ And he always does call them.

The individual techniques that the salespeople reported weren't what were most important. It was the number of techniques, not the specific techniques that made the difference. By having specific techniques, the salespeople were demonstrating that they had thought about each aspect of dealing with their customers. They were organized and routinely did things they felt their customers would respond to or appreciate. Each of the specific techniques was a differentiator. Each technique gave their customers another way to identify and describe to others with whom they were doing business.

This is not to say that the specifics of the differentiator are totally unimportant. The differentiator needs to be appropriate to the service or product you offer. It won't help you to wear a funny hat or be known as the biggest fan of the local football team. Your differentiator needs to demonstrate how you are different, but must also be a specific benefit to your customers.