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Law of the Vital Few

Law of the Vital Few
July 19, 2011 John

How should construction firms use the Pareto Principle?

Vilfredo Pareto was an Italian economist who observed in 1906 that 80% of the land in Italy was owned by 20% of the people. He also carried out surveys on other countries and found similar results. In business we talk about the ‘rule of thumb’ and this generally confirms the same principle that 20% of our client base brings in about 80% of our workload.

If, as the manager of a construction firm, you seem to spend your time running around, chasing leads and managing projects which hardly seem to impact on the firmโ€™s bottom line, perhaps itโ€™s time you employed the Pareto Principle.

The Pareto Principle states that 80% of your business actually comes from 20% of your clients. So, if youโ€™re investing a lot of time and effort and seeing only a small financial gain, it may well be that youโ€™re investing in the wrong people.

Examine your client base thoroughly, both with regards to number of instructions which have been passed to you over the last 12 months and the actual value of those instructions.ย  Grade each client and identify your top 20%.

Now that you have your list of top 20 clients, look at how often you have communicated with them โ€“ do you speak regularly?ย  Have you tried identifying any cross selling opportunities which might be appropriate for their particular needs?ย  Is there anything you can do to provide additional client value or encourage repeat business?ย  Why not offer to take each one out to lunch over the course of the next 12 months, to talk about what projects theyโ€™re involved in and how you could possibly help out with any challenges they may be facing?ย  You could be surprised at the opportunities which arise through such an informal, face to face meeting.

Ask yourself, what can I do now?

1. If youย analyse your top 20% can you sell them other ‘services’ or ‘products?’

2. Are you in regular touch with each of these clients?

3. Do you have the names of your contacts colleagues? I have spoken with people who had no projects at tender stage but a colleague sitting in the same office had a couple just right for us.

4. Develop a ‘profile’ of the companies you are currently working with and search out similar firms.

5. Keep an eye on the new procurement portals being introduced. Some organizations use several portals but may still go to their favoured contractor/consultant.

6. Remember, this principle is a guide and not a certainty!