By Doug Carter
In January 1999, I received a phone call from an excited associate. The reason for the excitement was that he had just met Ken Blanchard, co-author of “The One-Minute Manager.”
Two of my associates had traveled to a bookstore during their lunch hour to look for a book that had been highly recommended to them. As they were looking through the stacks of books, they glanced over and recognized Blanchard standing next to them. Seizing the moment, they asked for his autograph. He, in turn, asked them what they did for a living.
As they were describing the Clients Forever process, Blanchard became quite interested in the concept. So, he invited them to meet at his office to pursue the conversation. My associates suggested that I be included. Blanchard agreed.
Four days later, we drove to the Blanchard Training Center. After being escorted to his office, we met with Blanchard and continued our conversation. We talked about several subjects, including how to build business relationships that truly work and how to measure the effectiveness of the client development process.
During the conversation, I expressed my concern about the lack of understanding that trainers and managers have in applying the Pareto Principle. You probably know this as the 80-20 principle. The premise is quite simple. As it’s usually described, 80 percent of your results come from 20 percent of your effort.
My observation, however, is that most people generalize the principle to combine the effort and results percentages so they always add up to 100 percent. As an example, people will say that 75 percent of your results come from 25 percent of your efforts, or 60 percent of your results come from 40 percent of your efforts. The truth is there is 100 percent of effort and 100 percent of results.
Blanchard agreed. He added, “Doug, it’s worse than you think! The number is actually 50-5.”
When I asked him what he meant, he told us that his company had just done an analysis on its previous year’s total production. It was discovered that just more than 50 percent of the company’s gross sales had come from only 5 percent of the client base. A follow-up study with several clients showed the percentages to be accurate in all cases. In one case, 92 percent of a client’s income was derived from only 2 percent of the client base.
What an intriguing bit of information!
With this insight as inspiration, I have kept a rolling average for financial advisors ever since this conversation. The current number is that 50 percent of the average financial advisor’s income comes from 8.77 percent of the client base.
Let’s apply this to your situation. Let’s assume you are a financial advisor who has spent an entire career building and shrinking your practice to 200 clients. If I told you that we could increase your income by 50 percent in less than six months while possibly even decreasing the number of clients you have, you would have every right to be cynical. After all, it appears that a 50 percent increase in production would require a 50 percent increase in total clients.
But, if your numbers are consistent with the national average, it doesn’t take an increase of 50 percent of your current client base to increase production by 50 percent. It only takes 8.77 percent, or 18 new clients, to have a 50 percent increase in volume. If you multiply 8.77 percent by 200 clients, that equals 17.54 or 18 clients.