A contribution from Chris Orlob of Gong.io:
We’ve all been told at various times that life isn’t fair, but until fairly recently, no one quantified that statement. It took Italian economist Vilfredo Pareto to notice in 1906 that 80% of Italy’s land was owned by 20% of the population.
Pareto eventually saw this distribution everywhere: 20% of customers often create 80% of revenues, 20% of features prompt 80% of usage and 20% of the input creates 80% of the result.
When it comes to your sales force, 20% of the top performers often account for 80% of sales. This is the biggest problem right now in B2B sales or any other kind of sales. Here’s why:
- The majority of salespeople need help. While it’s natural to focus on the high achievers and assume that they are just gifted individuals, sales experts say the 80/20 ratio can be improved by looking at what makes the 20% special and transferring those skills to the rest of the sales team. From a practical standpoint, it makes more sense to focus on one fifth of your sales force when incremental improvement for the other 80% will reap more benefits.
- Underperformers can improve. Salespeople on the lower end of the performance spectrum don’t have to resign themselves to their fate. One-on-one coaching has proven to be an effective means of improving sales performance. But effective coaching is often in short supply. Sales coaches tend to rank themselves much higher than their coaching subjects do, But research shows that effective coaching can be a boon to the “middle 60%” – the core performers in an organization and can increase performance in this group by as much as 19%.
- Underperformance compounds. Compound interest is what makes investors millionaires. Compounding is what happens when interest earns interest. Unfortunately, the same can be said in the negative. For instance, if you invested $10,000 with simple interest (no compounding), then at the end of five years you’d have $12,500. But if the interest compounded every month, you’d have $12,834. The longer the time frame, the starker the difference is. If you left that $10,000 in for 20 years then you’d have $27,126.40 with compound interest and $20,000 with simple interest. But imagine that instead of 5% interest you were earning 5% negative interest. That’s the situation you have when the majority of your sales team is underperforming. They miss out on opportunities and sales that lead to other sales that compound over time.
The good news? The Pareto Principle isn’t set in stone. Some believe that AI is going to change the 80/20 rule since data will offer more transparency and more mechanisms to address performance shortfalls. That won’t make up for the fact that talents aren’t equally distributed, but may bring down the ratio.
Chris Orlob is Senior Director of Product Marketing at Gong.io. – the conversation intelligence platform for B2B sales teams. Gong helps businesses convert more of your pipeline into revenue by shining the light on your sales conversations. It records, transcribes, and analyzes every sales call so you can drive sales effectiveness, figure out what’s working and what’s not, and ramp new hires faster.