The Pareto Principle

There is an important principle in business called the Pareto Principle – it says that 80% of your results will come from 20% of your effort.

Applied to photography, it means that 80% of your income is going to come from 20% of your efforts. The other 20% of your income will come from 80% of your effort.

It usually works for larger percentages, too – 90% of your income on 10% of your customers, 95/5, etc.

The best example I heard about this was in Tim Ferriss’ book “The Four Hour Workweek”. In the book, he talked about working long hours, lots of aggravation, for a specific income. When he heard about this principle, he sat down and examined his customer base. What he found was that out of 120 customers, 5 of them resulted in 95% of his income, while a different 2 resulted in a huge percentage of his frustration, used up a huge percentage of his time, and contributed only 10% to the bottom line.

So, his conclusion? Fire the bad customers, put the ones in the middle on “autopilot” (if they call, great, if not, then don’t sweat it), and go out and find additional customers that fit the profile of the 5 he already had that were contributing the largest chunk of income to his bottom line.

His results speak for themselves: his income went from $30K to $60K (a month), and his weekly hours dropped from over 80 to approximately 15.

So, how can you apply this to your business?

My suggestion is to sit down and look at who your customers are. Then, you need to decide which category this customer is in: “80% results” or a “20% results”.

Now, obviously, most people cannot just toss out all their customers willy-nilly. It would provide a significant hit to their bottom line. (Even if it’s only 20% – that’s still noticeable.) So, I suggest phasing them out, while you search for better customers.

But, I hear the photographers saying, “Most of my customers are one-time customers.” The wedding photographers are probably great examples of this.

My response would be:
1) you know how your customers are finding you (advertising, flyers, word of mouth)
2) over time, you will notice that a certain kind of customer behaves a certain way, and/or finds you through a certain channel
3) you can use your antennae that help you determine if an incoming customer fits the profile of ball-breakers less than desirable customers – and if they do, then just refer them elsewhere. Also – stop advertising in those places that cause those customers to find you.

As an example, I offer up the situation of a wedding photographer who determined that he would perform an experiment. After booking two weekend weddings with his desired customers, he would then attempt to book the remaining weekends with what are affectionately known as “budget brides”. He would then compare the results.

His results were so sad, it was almost hysterical. The budget brides demanded more service, demanded price reductions, complained about everything, and in general were many times over the amount of trouble than his higher-priced brides. 80% of his aggravation was coming from these brides.

If I was his advisor, I would say, “Stop booking budget brides. Stop doing meetings with brides who found you through those channels. Instead, focus your efforts on obtaining more of the types of customers that you really want.”

Would you rather have 2 cheap customers that give you grief, or 1 customer that pays well and appreciates the value that you bring to the table?

The Pareto Principle. 80% results, in 20% of the time.