As a real estate agent, did you ever have the feeling that you were doing a whole lot of prospecting and nothing was bearing fruit? I’ve met tons of agents that this describes to a tee. Well, if this is you or anyone you know, then I’ve got an exercise for you (which doesn’t not involve wearing workout clothes or breaking a sweat). The key is to consider your business with respect to the Pareto Principle.
What is the Pareto Principle?
The Pareto Principle, named for economist Vilfredo Pareto, states that 80% of consequences come from 20% of the causes, thus demonstrating the unequal relationship between inputs and outputs. This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. The Pareto Principle is also known as the Pareto Rule or the 80/20 Rule.
The principle, which was derived from the imbalance of land ownership in Italy, is commonly used to illustrate the notion that not things are equal, and the minority owns the majority. The Pareto Principle states that 80% of consequences come from 20% of the causes. Unlike other principles, the Pareto Principle is merely an observation, not law. Although broadly applied, it does not apply to every scenario.
In other areas, this sort of imbalance has been documented as follows:
- 80% of car accidents are caused by 20% of young people
- 80% of lottery tickets are bought by 20% of society
- 80% of air pollution is caused by 20% of the population
- 80% of all firearms are used by 20% of the population
- 80% of all Internet traffic belongs to 20% of websites
- 80% of car crashes happen within the first 20% of the distance covered
- 80% of mobile phone calls come from 20% of the population
- 80% of the time people use 20% of the tools at their disposal
What about real estate prospecting? How does it apply to the field of real estate?
The Pareto Principle and the Field of Real Estate
A handful of years ago, I worked with one top producer to analyze his entire book of business from the very beginning of his 20 year career as a California real estate salesperson. For each and every transaction, we documented the lead source. I’m sure you won’t be surprised to hear what we found: Over 80% of his closings came from less than 20% of his lead sources. Basically, we found numerous cases where we could track 20+ transactions to a certain family or business affiliate. For example, one auto upholstery shop owner could account for 35+ transactions (personal transactions, transactions of his children, relatives, friends and associates).
Looking for more leads? Try this!
If you are struggling to find leads, the first stop should be your past clients. Take some extra time to create a ginormous spreadsheet of all of your career closings. Add a column with the lead source for each—or as many as you can remember. Additionally, add another column with the name of the community of each property. Look for commonalities—such as careers or sellers or buyers, communities, families or individuals. You may be surprised to unearth new areas that you will be able to focus on in order to amplify your current prospecting plan.
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