The 80/20 Rule
In the late 1800's, Vilfredo Pareto, an Italian economist, put forth the principle that in any variety of situations, 80% of the effects are the result of 20% of the causes. Countless experiments and examples have proven that there is real truth to this, to the point this phenomenon has earned a variety of names- The Pareto Principle, The 80/20 Rule, The Law of 80/20, and so on. Consequently, it has been written about in many business books that 80% of sales come from 20% of clients, and that what we're going to talk about.
If you have been in business for some time, dig into your accounting software or spreadsheets and generate some reports over the last few years, and see which clients make the biggest contribution to your annual income. This would be something like "Annual Revenue by Customer". You may be surprised to see the results! Many of you will have a list of twenty or thirty clients, and in a list sorted by revenue, the top 4 or 5 may likely be responsible for the bulk of your income, while the remaining clients total a relatively small percentage, though not meaningless. You may say to yourself "Well, those were good filler projects, because if it weren't for them, I might have had no projects at all!" And then at the very bottom of the list are a few clients whose contributions may have only covered a monthly water bill or a date night with your significant other. What if the time you spent on those projects went towards contacting prospective clients that match the same criteria as your top earners?
It's not personal, it's business
Rather than defending that lower 80 percent, and saying "some of those clients are actually really cool people", you SHOULD be thinking "What if I could replace most all of them with even a few more clients similar to those in the top 20 percent?" Very likely, this replacement would surpass the income generated by the original clientele, and also, very likely, the time spent on their projects would be less, leaving you with more time to add in yet more clients of the top 20 type.
It may seem like a risky move (to eliminate clients), and possibly even cause you to wonder "how do I even get rid of these people??". After you do the math, however, you may flip to thinking "Wow... it's actually more risky to continue working for them!" Obviously, you need to look closely at your clients and make sure they don't have some hidden value before discarding them. For example, a low earning client who has good networking history and provided profitable referrals. And there may be some with whom you have such a strong personal relationship with, disposing of their business is not a consideration. For the rest, it's time to think about your off-loading strategy. We'll discuss how to "break-up" with clients in a later article.
To eliminate the risk of lost income, understand that this move does not need to occur overnight. It can be a transition that spans several months or even a year or more. But, the sooner the better, or you risk not changing at all. The key is to maintain a consistent effort, and defining (and reaching) a set of measurable goals. As you bring in new clients that match your winning criteria, you can begin saying "no" to your older poor performers without feeling guilty or stressed. It's simply a smart business decision.
Time to put yourself out there
From here, it's time to figure out "well, how do I bring in these new clients anyway?" Enter into the world of Sales and Marketing. Some people are naturally great at selling, others learn the skills and become great, and a lot of people are actually afraid of selling themselves. I started off as one of these people, but have continually studied and practiced and become more and more comfortable with it. I don't consider myself to be great at sales, or else this series would be focusing on building a large studio rather than freelancing. But my skills became good enough to place me well inside the top 10% of wage earning Americans. Naturally, a full discussion of sales and marketing techniques is way beyond the scope of this article. However, here are some pointers to start you in the right direction.
Start with the low-hanging fruit and ask your top earning clients for referrals to other peers they have in the industry. Personal referrals work better than almost any other method of acquiring new business. Next, consider all the other avenues of contacting prospective clients- email, direct mail, phone calls, etc. Determine which options will be most effective for your budget. Yes, this effort will likely cost some amount of money, and will be worth the expense. When you finally get in contact with someone, focus on what's unique about you, and do your best to eliminate any risk for them to try your services. Lastly, ask them questions about their business and their problems. Don't simply spout off about yourself and then ask for a project. Listen to them, learn about them, and be someone who can solve a problem. Only after doing this should you consider trying to close a deal. And until I publish the full module on sales and marketing, take the bull by the horns, and begin this effort today.
Step 1, study your clients.
Step 2, buy a best selling book on sales.