How to Apply the 80/20 Principle to Your Freelance Business

Dice

God plays dice with the Universe. But they’re loaded dice. And the main objective is to find out by what rules they were loaded and how we can use them for our own ends.

~ Joseph Ford

The secret to success in any endeavor is to figure out the most effective action and execute accordingly.

And yet, many of us spend our days toiling away on the kind of work that offers a low (or non-existent) return. We often have no real grasp of the effectiveness (or ineffectiveness) of what we do. We’re fooled into the age-old idea that working hard alone will get us to where want to be.

But I’ll take effective work over hard work every time. And that is essentially what I want to talk about in this post. I want to demonstrate how the hundred-plus-year-old findings of an Italian economist can be adapted to help you make more money in less time with your freelance business.

The Pareto Principle

For a very long time, the Pareto law has lumbered the economic scene like an erratic block on the landscape; an empirical law which nobody can explain.

~ Joseph Steindl

Call it what you like: The 80/20 Principle, the law of the vital few, the principle of factor sparsity, the principle of least effort. It doesn’t really matter. What does matter is how you can utilize this once-unremarked discovery to transform your freelance business.

The 80/20 Principle was the discovery of an Italian economist named Vilfredo Pareto. His achievements were largely uncelebrated during his lifetime (1848 – 1923) but he was the first to spot an astonishing pattern: that a minority of causes, inputs or effort usually lead to a majority of the results, outputs or rewards. The relationship between cause/result, input/output or effort/reward is often (but not always) an 80/20 split. The key point is that in practically all walks of life, there is a huge imbalance between the aggregate of cause and effect.

To give you a better idea of what this means, consider a few practical examples (taken from The 80/20 Principle by Richard Koch):

  • Pareto’s original discovery that 80% of Italy’s land was owned by 20% of the population (80/20)
  • 1% of words (and their derivatives) in the English language account for 80% of common speech (80/1)
  • 1.3% of movies earn 80% of box office revenues (80/1.3)

You may be wondering what this has to do with creating a more successful business. The answer is rather a lot. If you can spot such imbalances in cause and effect within your own business you can endeavor to skew the 80/20 Principle in your favor.

Eliminate

Take a moment to consider what a day’s work typically looks like to you. How much time do you spend logging billable hours? Let’s say 60%. So to put it in 80/20 Principle terms, you earn 100% of your income in 60% of the time spent working.

Now consider this: in theory, if you could increase your proportion of billable hours to 90%, your earnings would increase by 150%. More billable hours equals more income. The key is to dispose of those tasks that do not make you money (either directly or indirectly) and automate everything else (if possible).

Take this opportunity to carry out an in-depth audit of your business. Spend a period of time (between a week and a month) logging your time, categorized by task. Once you’re done, create a pie chart out of your time log and you’ll have a good idea of where all your time goes.

Here’s what mine looked like for time spent in the month of June:

Time

After running this exercise I could instantly see where I could both eliminate and automate great swathes of the non-income producing elements of my work.

But what do I mean by eliminate or automate? Well, the first step should be pretty clear: if a task doesn’t contribute to your business, you shouldn’t be doing it. These tasks can take many forms: they may once have been useful, they may be the product of poor habits, they may represent inefficiencies in your system, and so on. But one thing is for sure — you will have some. Probably a lot.

Furthermore, it’s not just standalone tasks that should be subject to scrutiny. You should also examine worthwhile or necessary tasks with a view to eliminating inefficiencies. Consider email, which is an enormous time suck for most of us. If you have instant notifications turned on and tend to get distracted by emails on a regular basis, you are suffering from a severe lack of efficiency. If you simply change your approach to email so that you only check it three times per day (morning, lunchtime and before finishing for the day) you will find that the speed at which you handle email will go through the roof. Furthermore, you will be less distracted throughout the day.

Automate

Once you feel you have eliminated all ineffective tasks and all inefficiencies in terms of workflow, it is time to see what you can automate. But what do I mean by automate?

The best definition (in the context of this article) would be as follows:

The systematization of a task so that it can be performed either by computer or contractor.

Tasks that do not require your specific expertise can be automated. Tasks that do require your expertise, but which can be systematized in such a way that your expertise can be utilized independently of you, can also be automated.

Typical tasks that are ripe for automation include:

  • Social media management
  • Client support
  • Emails
  • General administration
  • Graphic design
  • Web design
  • Accounts and bookkeeping
  • Cold calling

When it comes to hiring contractors to do such work with you, there are many options. You can use a broker site such as Elance or go for the likes of AskSunday or TaskBullet to find an extraordinarily cheap virtual assistant based in the Philippines, India or another third world country. However, I do not personally recommend these options — although you can find stellar performers in these areas, more often than not there will be communication issues and a lack of understanding that end up costing you more time and hassle than the lower costs are worth.

Far better to spend a little more on a domestic “virtual assistant” with whom communication will be easier. If you’re willing to shop around a bit then you’re likely to find American virtual assistants available from as little as $15 per hour. Tap up your social media networks and get stuck into Google to find an independent operator (rather than the outsourcing companies) who doesn’t have to worry about overheads and profit margins.

You may be worried about the cost of hiring a virtual assistant, but on the assumption that your hourly rate is well in excess of the cost to hire them, it’s a no-brainer. If your hourly rate is say $50 per hour and you outsource 10 hours of work per week at $20 per hour, that’s a theoretical net profit of $300. That calculation is based on the assumption that the hours gained are used to bill more client work (i.e. (10 x $50) – (10 x $20)). Even if you only bill 4 extra hours you’ll still break even and have an extra 6 hours to do with as you please.

Focus on the 20%

He who trims himself to suit everyone will soon whittle himself away.

~ Raymond Hull

Once you have eliminated and automated you should have a lot more time on your hands with which to find new clients and bill more hours. But when it comes to applying the principles of the 80/20 rules to freelancing, it’s not about finding any old clients — it’s about finding the right clients. I am referring to what Michael Port calls the “red velvet rope policy” in Book Yourself Solid:

Imagine that a friend has invited you to accompany her to an invitation-only special event. You arrive and approach the door, surprised to find a red velvet rope stretched between two shiny brass poles. A nicely dressed man asks your name, checking his invitation list. Finding your name there, he flashes a wide grin an drops one end of the rope, allowing you to pass through and enter the party. You feel like a star.

Do you have your own red velvet rope policy that allows in only the most ideal clients, the ones who energize and inspire you?

If you examine your client portfolio you’ll probably something similar to the following:

  1. 80% of your income comes from 20% of your clients
  2. 20% of your clients account for 80% of the stress you experience

What you need to do is find more client of client type 1 and get rid of (and don’t take on any more) of client type 2. It is not within the scope of this article to show you how to do that (especially considering that approaches will vary depending upon your business), but unless you are absolutely desperate for work, you should be ready to make major changes to your client list.

Yes — I am talking about firing existing clients. I am talking about clearing the decks of those 20% of clients who cause you no end of problems so that you can take on more of the right type of clients.

Generally speaking, you’re looking for clients with the following two attributes:

  1. Low maintenance
  2. Willing to pay a premium for a quality service

It would certainly also help if they have work to offer that you (and your staff, if applicable) find interesting and fun. After all, life is too short to grind away on work that doesn’t inspire you.

What Next?

By now you should be ready to make major changes to your business. However, there is plenty of additional reading you can do if you feel that you are not yet ready to make the leap. If you are serious about applying the 80/20 Principle to your business and making massive positive changes to your professional life, read each of the following:

And if you have any questions about the principles I have covered in this post, please don’t hesitate to make yourself known in the comments section below!

Photo Credit: topher76

About Tom Ewer


Tom Ewer and the WordCandy team have clocked some serious mileage as freelancers, agency employees and even agency owners over the years, and they love sharing their combined expertise here on the Bidsketch blog.

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Brad Hussey

Thanks for the great post, Tom! Ever since burning the boat and exclusively freelancing since last September, I’ve been learning more and more about efficiency and how to achieve it.

After stumbling across the likes of Tim Ferriss, Chris Guillebeau, Leo Babauta, etc. and reading their material, I’ve been inspired even more to actively pursue efficiency and automation in my freelance business.

I’m very thankful that it’s getting to a point now where I am very busy with my freelance business, and have been consistently booked solid for awhile. However, that being said, I’ve also started to see patterns and correlations in my stress levels and un-inspiring work that I should be automating or, even better, eliminating!

I think once I finish up a couple large projects I’m doing right now, I will be performing an audit of my business and time. Thankfully, I use Ballpark App for my freelance time tracking & billing, so I have some well-documented data on my billable hours. I also leave RescueTime running in the background during the week so at the end of the week I can see exactly where I’m spending my time and how efficient (or inefficient) I am working — so my time audit should be a fairly straightforward process.

Thanks again for the great article! I’ve found tremendous value in a few of the things you’ve shared.

Cheers,
Brad

Lanre Awoeyo

Hi,

The orientation is profitable!

Kijan Maharjan

SuperCool guide.

Joel

wonderful principle that proof true
thanks

Sylvia

Great, thank you! It is parallel principle to core/context.

Joel Warren

Love the principal and the ideas in the article. I turn off my email except for 3 times a day which is an amazing productivity booster. I’m still trying to squeeze more time out of my day and focusing more on working with clients I share interests with.

Looking forward to most posts, every post of yours seems absurdly appropriate to my situation.

Dave Lane

Great post! I’m reading the book by Koch so this was well timed. I’d really like to work on that email system!

Ryan Van Fleet

If you put this into practice, you will truly see results. I have applied this principal by creating a web design product that targets the clientele that provides me the greatest return, with the least amount of hassle. By focusing and consolidating tasks, I now enjoy 80% productivity with very little inconsequential nonsense.

Always enjoy your posts.

Wes Nappi

Hey Tom,

Great post! Implementing the 80/20 principal in one’s life can be extremely useful. I appreciate you mentioning my business, TaskBullet.

I’d like to note that you made a good point by saying: “more often than not there will be communication issues and a lack of understanding”.
However, this issue can be avoided by establishing expectations and methods of communication, and clear direction.

At TaskBullet, it also helps that our customer service office is in the USA. So, communication is much easier, and you get to hire a VA for as low as $3.45 /hr.

I look forward to reading your other blog posts!

Wes

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