How An 80/20 Analysis Can Help Grow Your Business

You’ve no doubt heard the old adage that 20% of your effort produces 80% of your results. Since the early 1900’s when this principle was first developed by Italian economist Vilfredo Pareto, we have seen the 80/20 Rule show up in all corners of business, even financial advising. Take a look at any advisory practice and you’ll no doubt see the same pattern: 80% of the revenue is generated from only around 20% of clients. And if we treat all clients equally, which many of us do, this means we are diverting a large percentage of our time away from our most valuable relationships. Advisors that insist on providing equal service to the 20% and 80% risk ongoing inefficiencies: the worst-case scenario could result in the failure to grow due to the inability to create scale.

Imagine if more of your clients looked like the 20% and what that would mean for the growth of your practice. What would your practice look like if you were able to focus 80% of your time, energy, and resources on the 20% that make up the bulk of your revenue? Not only would that create the potential for even higher revenue, but according to USA Financial, most advisors say that their enjoyment and fulfillment would also be much higher.

The first step to achieving this greater level of success and enjoyment is performing an 80/20 analysis on your practice. Take a look at your entire client base and segment it into different tiers. Most advisors are familiar with the ABCD method of classifying clients and doing so will allow you to determine who your “best” clients are so you can leverage those relationships to keep growing revenue.

If you’re not measuring it, you’re not managing it. And if you’re not managing it, then you are not in control of your business.

Make More Money with Fewer Clients

Rather than spreading yourself a mile wide and an inch deep, consider diving deeper into those client relationships that can truly influence your bottom line. It is inefficient to devote as much of your time to those who don’t bring in as much revenue as you do to those who account for the bulk of your success. You not only need to protect your 20%, you can rely on them to help grow your practice, too.

Your best clients will also be your greatest and most enthusiastic referral sources. Rather than asking everyone in your practice to “refer you to a friend”, choose only those clients who are your strongest advocates and who are likely to make a personal introduction to their network. Not surprisingly, the 20% are the group that is most likely to want to talk about their experience with you.

Many advisors build their practice by default—it just happens. But by leveraging your practice’s specific strengths, you can design your practice to create growth and retention. There’s nowhere in the 80/20 rule that says you have to keep your least productive clients, in fact, the most successful advisors generally have fewer clients. A study some years ago by PriceMetrix Inc. suggests that the average advisor who shed small accounts by 5% or more actually increased revenue by $43,000.

You cannot be everything to everyone who has ever done business with you. But you can be everything to your 20%. These are the clients that will give you more enjoyment in your career. Consider handing off your C and D clients to someone else so they don’t feel neglected: they won’t be offended and might, in fact, be grateful that someone has the time to devote to their needs. Not only will this create greater efficiencies in your practice, it might even allow some extra time for yourself!

Run an 80/20 report on your own book of business and begin focusing on your efforts on your 20% to make work fun again.