The Pareto Principle states that “for many events” 80 percent of effects come from 20 percent of causes. Also known as the 80-20 Rule, it’s used by business owners, freelancers and entrepreneurs as a reminder that 80 percent of their income derives from just 20 percent of their efforts. If they could just identify the areas in which their effort pays off the most, focus their energy on those activities and outsource, improve or kill off the rest, they’d be able to boost their income. In practice, though, the “rule” is rarely helpful, especially for freelancers.
The principle is named after Italian economist Vilfredo Pareto who noticed in 1906 that 80 percent of the land in Italy was owned by 20 percent of the population. He developed the idea after counting the 80 percent of the peas in his garden that came from 20 percent of the pods. Since then, the principle has also been seen in global wealth distribution where the richest 20 percent of the population is said to earn around 80 percent of the income, and even among the world’s top ten earners, Carlos Slim, Bill Gates and Warren Buffett together own as much as the next seven billionaires combined.
But can that same principle be applied to a business environment? Does 80 percent of your income derive from 20 percent of your clients? Does 80 percent of your website traffic come from 20 percent of your traffic sources? Are 80 percent of your freelance bookings made for 20 percent of your services? And can you focus your business on the 20 percent of it that’s worth the most?
One Client Paid Seven Times More Than the Others
One person who tried to answer the question is freelance writer Ali Hale. Writing on the website of personal development trainer Sid Savara, she laid out in detail the income generated at the time by her five freelance clients.
At first glance, the principle appears to be close to being true: her three top-paying clients make up about 90 percent of her income. Break down the figures by article and the accuracy of the Pareto Principle appears even stronger. Hale’s four blogging clients pay her an average of $40 per post but one article written for a magazine delivers more than seven times the amount she’d make writing for a blog.
“This means that 5% of my writing outputs produces 23% of my income,” she writes. “This definitely comes closer to what the Pareto principle predicts – especially as many people say that the 80/20 figures can be adjusted to suit. The easy conclusion to draw from this analysis is if I could write five magazine articles per month, I could replace my other income streams entirely.”
But, of course, it’s not as simple as that. Hale hasn’t factored the time taken to earn those different incomes. A $284 magazine article might deliver more than seven times the amount generated by a blog post but it also takes her at least four times as long to research and write. It’s still more profitable but not seven times as profitable. And those gigs are much harder to win. Hale’s magazine client only needs one article from her each month (while client B appears happy to take as many as ten.) Finding additional, high-paying magazine clients is much harder and takes much longer than winning blogging work, another factor she has to consider in her calculations.
Hale went so far as to measure the amount of time she spent on each of her tasks and compare them with the amount earned. On average, she noted, she spent:
“The figures were fairly consistent across the different blogs,” she writes, “and though some activities do not directly produce income (such as answering comments), I consider them a part of the job of producing a blog post, and further recognize that good communication with a blog editor and readers is a point in my favor when an editor is considering keeping me on.”
So although a small portion of her clients contributed the bulk of her overall income, the hourly rate she earned from each was largely the same. The only kind of client that paid significantly more —the magazine buyer — requires a large up-front investment of time spent querying with a low likelihood of seeing any return at all.
It’s the Numbers Not the Principle That Counts
That doesn’t mean that the Pareto Principle is entirely useless. It is vague and broad, encompassing everything from effort and time to income and hourly rates so that it’s always possible to place 80 percent of one thing alongside 20 percent of another, even when there’s no causal link between them. But looking for those figures and measuring them is helpful in itself.
Hale, a freelancer already working effectively, has little to gain from the Pareto Principle, but knowing that she spends an average of 40 minutes to write a blog post, with the time growing or shrinking depending on value and length, is a useful piece of business intelligence. She’ll need that information to make accurate bids, plan her day and supply estimates of delivery dates. And if some of her time is spent completing tasks that don’t bring in revenue directly, such as communicating with clients or reading journals, she knows to count that time as necessary to her production and business growth.
The Pareto Principle can always be found in any business and any endeavor — and that includes freelancing. But while the principle itself isn’t particularly useful, the measurements they require are. As long as they don’t include the number of peas in your garden.