Some implications of the 80/20 Rule

There is an often repeated claim that, in a business that depends on a sales staff to sell its products, 20% of the sales people are responsible for 80% of the annual sales volume. This is formally known as the Pareto principle, which states that; for many events, roughly 80% of the effects come from 20% of the causes. In other words, there are many situations where the vast majority of the measured or observed outcome, whether desirable or undesirable, can be explained or traced back to a relatively few key contributing/causal factors or sources.

Belief in this principle informs how sales managers select and manage their sales force. For example, a natural assumption that tends to spring from a belief in this principle is that only 20% of people have what it takes naturally to produce excellent sales results. Given this assumption, many – and it maybe safe to say that most – sales managers rely on their ability to identify, acquire and keep individuals who fall into this 20%, as their main sales force development strategy. This makes the competition for great sales people very intense, as there aren’t enough of them to fill every sales position on every sales force. The result there fore is that sales forces are generally staffed with a mix of stellar performers, average performers and low performers, despite the best efforts of sales managers to acquire and hold on to only great sales people.

In an attempt to make the most of what they have, some proactive sales managers turn to training and coaching to try to elevate the performance of their sales force. Judging from the number of sales training offerings available, there is a lucrative market for sales force training and development. However, there are a number of factors that combine to undermine the effective pursuit of training and development of individual sales people:

1. It isn’t easy to tell what training will help each individual sales person.
2. It sometimes require a lot of experimentation in order to find the right course for a person
3. The more time spent in training, the less available time remains for actually selling.
4. There is a high rate of turn-over among sales people at the lower end of the performance ladder
5. The cost of training and developing a sales force takes away from profits.
6. Sales managers hate the idea of investing in an individual who is very likely to then leave and go work for someone else.

Even though most managers will agree to the fact that training and development is a key component in creating and maintaining a high producing sales force, from a practical stand point the effectiveness of training as a strategy will have limited reach for many sales departments.

The net result is that 20% of the sales people continue to take home 80% of the sales commission while the other 80% of the sales force look on with envy. Think about that for a minute. If we are to believe in the Pareto Principle, then 80% of the sales people are typically splitting among themselves only a combined 20% of what the top earners are making. The above chart illustrates the situation graphically.

No wonder turnover is so high. And if turnover is high, no wonder the cost of sales recruiting and training is so high. No wonder sales managers eventually come to think that time spent working with new recruits is a waste of time. No wonder otherwise talented individuals stay away from trying their hands in a career in sales.

There is a need for a different belief system to take the place of the 80/20 rule, one that would make it possible for sales managers to gain access to a wider pool of viable candidates, allow training to be more effective, make it possible for new recruits to start earning a decent living much sooner, and through these factors, result in increased sales volume for the sales manager.

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