How to Use the Pareto Principle in Real Estate Business to Improve Your Sales?
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Italian economist Vilfredo Pareto created the 80/20 principle, also known as Pareto Principle because he notices that it applied to how private wealth was controlled in his country. Nowadays, Pareto’s Principle is used in multiple fields, including real estate. Understanding how the 80/20 rule applies to business can help you improve sales in the long and short term.
How Does the 80/20 Rule Show Up in Real Estate?
It’s commonly thought that real estate sports the 80/20 number across the board, but that isn’t actually the case. It’s closer to 70-75/30-35 for over 120K real estate teams across the United States as stated by MLS (Multiple Listing Service) data. In layman’s terms, it means that approximately 30% of agents produce 70-80% of closing in volume and sides.
Here are the findings of MLS entities across the study:
- 29.02% of agents closed 80% of the total amount of homes.
- 30.27% of agents closed 80% on their side of a sales transaction.
- 24.66% of agents closed 75% of the total amount of homes.
- 25.25% of agents closed 75% on their side of a sales transaction.
Note: “Side” in real estate language refers to the amount of money an agent earns in the transaction. Most agents will partner up with various professionals in their real estate team to give a home a better chance at selling. If a real estate agent does the bulk of that work, the agent “closes their side” even though they also helped to close the whole commission.
How Can You Apply Pareto Principle to Real Estate for Sales?
In a service-based industry like real estate, it’s essential to track your business metrics to generate more leads. A Customer Relationship Management (CRM) software can find more potential customers and accommodate current clients simultaneously.
With these metrics, you can use Pareto’s Principle in the following areas.
When you land on a marketing platform or project that works, you’ll want to use it constantly. For example, if 80% of your advertising wins come from 20% of your ads, you won’t have to put a lot of effort into marketing projects that don’t work. Of course, that doesn’t mean you should avoid risks, but it does mean you found something that provides consistent results.
Social Media Insights
Everyone has fans, even real estate agents! While not all homeowners will follow you on social media, 20% of them will want to engage with your content if you left an impression. While on the topic of social media, the same 80/20 rule will apply to your recent posts. 80% of your engagement will come from a small selection of content, so focus and improve on those posts.
Complaints and criticism are commonplace in any business, but you’ve likely noticed that a large volume of dissatisfaction comes from a small group of clientele. You might spend a lot of effort keeping these clients satisfied, even though it’s an uphill battle. If 80% of your clients are leaving no reviews or positive comments, that’s a sure sign you’re doing a good job.
If it’s true that 20% of your employees are closing 80% of the sales, you can decide to train the other 80% further or keep the most productive members on the team. To maximize effectiveness and efficiency, you may want to cut the group down into a smaller workforce. A more productive workforce means less time spent on problematic employees.
Reducing Overall Costs
Cost management won’t always improve sales, but if you understand what homes in which areas are more likely to sell, you can reduce them without sacrificing potency. If an area in the city is responsible for 80% of your yearly sales, you can reduce time spent in another part of the state. Now, you can spend more money on marketing or perks for the sales staff.