The Pareto Principle, also known as the 80/20 rule or the Law of the Vital Few, was propounded by Vilfredo Pareto, an Italian economist who observed in 1906 that 80 percent of the land in Italy was controlled by 20 percent of the population. This principle has been found to apply in various aspects of life and business, suggesting that 80 percent of results are typically achieved by 20 percent of the actions taken.
In the context of selling and prospecting, applying the Pareto Principle can help salespeople identify the Target Rich Environments (TRE). These are the segments of the market where a small fraction of potential customers holds the potential to contribute significantly to sales revenue. For instance, if there are 100 potential customers in your environment with a combined potential of buying products worth $100 million, the Pareto principle suggests that only 20 of these prospects may have the potential to buy products worth $80 million, while the other 80 prospects may only have the potential to buy products worth $20 million.
Unfortunately, many salespeople often concentrate their prospecting efforts on the larger pool of 80 prospects, who may collectively have a lower potential, rather than focusing on the smaller but more lucrative group of 20 prospects. The key to success is shifting the focus from sheer numbers to value. A superior salesperson would prioritise identifying the target-rich environment where a smaller fraction of the population has the potential to deliver significant returns.
To maximise returns from prospecting activities, it is essential to organise your efforts strategically. Here’s a suggested approach:
- Identify the segment and category of the market you want to target for your products and services during that period.
- List all the prospects in your database.
- Select a maximum of 20 prospects per week and 100 per month that you strongly believe will have the most significant impact on your career and results.
- Prioritise the top 20 prospects per week and 100 per month that you believe will have the most significant impact if you call or contact them during that period.
- Prioritise the top 20 prospects per week and 100 per month that you believe will have the most significant impact if you write or communicate with them during that period.
- Identify the critical actions you need to take for the top 20 prospects per week or 100 per month that will make a remarkable positive difference in your career and results.
The Small versus Large Prospects Dilemma
Quite often, a lot of sales professionals face the quandary of either focusing their prospecting efforts on small accounts or on the large accounts. In other words, there is the confusion between targeting the prospects with the potential to buy in small quantities and focusing on the prospects with the potential for large orders. Before we address the issue of which segment is better, let us first examine the characteristics of large and small prospects.
Description: By nature, small prospects have small buying teams. Meaning that just one or two person calls the shots and decides whether to buy or not. Small prospects also have clear, uncomplicated buying procedures and processes and very little protocols.
On the other hand, large accounts have large buying teams and ladders of approval; including procurement departments, due process units, contract review committee, Board of Directors, etc. Most times, power is so diffused that one person on group can veto the decision of another person or group. This of course makes the buying process long and complex.
Rewards: Expectedly, small accounts are fast and easier to close, the conversion rate is higher and they offer quick wins.
Big prospects have large sales potentials in terms of volume and profit. They also offer high testimonial and referral value. You can use the credibility gained from serving or supplying a big a customer to prospect and win other accounts.
Challenges: The flip side of the value from prospecting small accounts is that they offer low sales potentials, low testimonial value and may not be worth the investment of time, energy and resources.
For the potentially large customers, the challenges include the slow conversion rate, which can be frustrating and discouraging.
Remember, as a salesperson, your most valuable resource is time. Therefore, invest it wisely by focusing 80% of your energy and resources on the 20% of qualified prospects who are most likely to do business with you. By being strategic in your prospecting efforts, you can achieve more with less and improve your overall sales performance.
Prioritise the important prospects and actions, and resist the temptation to major on minor things. By following these principles, you can significantly enhance your prospecting effectiveness and ultimately achieve greater sales success.
For more insights on prospecting and other critical pillars of sales excellence, please visit: https://www.linkedin.com/pulse/four-categories-prospects-ferdinand-ibezim