With one foot in ICE water and one foot in BOILING water . . . on the average . . . you should be pretty comfortable!”

One of the things I remember from my college statistics class was that an ‘average‘ is a theoretical construct abstracted from empirical reality.

Practically speaking, it doesn’t reflect in any accurate way what’s really going on in your world — i.e. ’empirical reality’.

“Statistics Lie”
That’s 100% Incorrect. Statistics don’t lie any more than guns kill people.   But people do use them to present reality in a way that may invite you to either misunderstand or (more likely!) misperceive the ’empirical reality’ that they’re based upon.

The 80 / 20 Rule — AKA “Pareto’s Principle”
Pareto was the Italian economist who first suggested that “80% of any result is generated by about 20% of the effort required to get it”.  This ‘rule’ of input and output has been applied to almost everything.  In business, you often hear, “80% of your profits comes from 20% of your clients”.  That’s accurate — until you dig deeper!

Pareto’s Principle reflects a Statistical AVERAGE Not an Empirical Reality!
In advertising, you hear, “50% of every dollar spent is wasted” followed by the collorary “So I have to spend a buck to see any value”.  That’s consistent with the “80/20 Rule” — only in that case, it’s more like the “50/50 Rule”!

Even if the 80/20 rule is ‘technically correct’, it can be ‘practically in-correct’.  Why?  Because is SIMPLIFIES the situation and that is what causes the 80/20 rule to be dangerous if you take it on face value.

Pareto was a Pessimist!
What I mean is that when you examine which of your clients are contributing to your ‘bottom line’, you may find what MIT lecturer, Jonathan Byrnes points out in his book “Islands of Profit in a Sea of Red Ink“.  Byrnes argues that your practice has a relatively few ‘super profitable clients’ who cover for the ‘grossly un-profitable ones’.  So while the 80/20 Rule may appear to be true, in reality, your profits are more likely to reflect the “99.9 / 0.01 Rule”.

KEY POINT:
Identify your SUPER PROFITABLE clients and cultivate relationships with them! 

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