Make the 80/20 Rule Work for You

Use a time-honored rule to organize your business and become a top salesperson.

March 1, 2002

For years, industry insiders have repeated the observation that 20 percent of the top salespeople account for 80 percent of real estate sales. Have you ever wondered whether this is true, and if so, how you could join the talented twentieth? Contrary to popular belief, the 80/20 rule, as it is commonly known, isn’t a real estate statistic, at all. Nor is it even a salesperson's statistic. It wasn't compiled by NATIONAL ASSOCIATION OF REALTORS® research, nor is it a pearl of wisdom purloined from a motivational speaker.

The 80/20 rule is actually a variation on the Pareto Principle, named after the 19th century Italian economist and sociologist Vilfredo Pareto. After studying the economies of several nations, Pareto noted in 1897 that approximately 80 percent of each country's wealth was consistently controlled by approximately 20 percent of its population. Pareto called this phenomenon "predictable imbalance."

Twentieth century quality management expert Joseph Juran expanded upon Pareto's conclusion by creating a general rule which became known as Pareto's Principle; that small cause(s) produce larger effects. From the 1950s to the present day, the 80/20 rule has become a general management principle as people employ it to evaluate problems and solutions, risks and rewards, efforts and results, and other productivity ratios. It’s easy to see how the principle was applied to salespeople--that 20 percent of top producers would logically garner 80 percent of sales.

But how do they do it? There has to be an underlying principle involved that makes the top 20 percent more productive, effective, successful, and wealthier than other salespeople.

The 80/20 rule might offer a few clues--you could conceivably run your whole business based on Pareto's Principle. Let's try a few examples and see how they work.

80 percent of your closings come from 20 percent of your farm. Work smarter, not harder. Identify which areas of your farm, such as your church, children's schools, or neighborhood associations, are producing the most leads for you and concentrate more of your time on them. Don't desert your other prospects, however; keep them informed and nurtured with an online newsletter filled with homebuying, home owning, and selling tips.

80 percent of your problems come from 20 percent of your customers or clients. Are you spending too much time driving unmotivated buyers around? Get them pre-qualified and under contract or tell them to find a salesperson who can afford to work for free.

Are you tired of placating unrealistic sellers? Don't take overpriced listings; you'll save money in the long run. Let other salespeople spend their money trying to beat the market. If clients don't take your advice, make them sign a waiver. And document, document, document. Record every phone call, e-mail, and notation on every transaction.

80 percent of new leads come from 20 percent of your marketing efforts. For a variety of reasons, some ads just won't pay off. Direct mail reaches a lot of people, but much of it ends up in the trash. Salespeople rely on ads and mailers because they can blanket a large farm of strangers. But the cost per lead is high.

The reason newspapers are so effective for bringing in business is that brokers have systems in place to capture the leads. Now buyers are using the Internet, but brokers and salespeople aren't as adept at capturing leads online. If you systemize your Internet leads, you'll be just as successful as if you were blanketing your city with ads, and at a fraction of the cost.

Do you give buyers and sellers reasons to contact you? Do you have an e-mail alert system, complete with autoresponder? Do you know how to send listings and other information over the Internet?

New products such as cellular phones and PDA's are coming out every day that are ideal for the mobile professional, so that there is no excuse to ever miss an Internet lead again.

80 percent of a problem can be solved with effort toward 20 percent of the solution. Don't have enough business? Go back to the basics using a few of Juran's results principles:

  1. Establish specific goals.
  2. Establish plans for reaching the goals.
  3. Assign clear responsibility for meeting them.
  4. Base the rewards on results achieved.

Juran also had another revolutionary thought, which was the basis of his quality management principles. Find out what the customer's needs are and develop products to meet those needs. When you concentrate on the quality of your processes, sales will take care of themselves.

(c) Copyright 2002 Realty Times. Reprinted with permission.

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.

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