The 80/20 Approach to Dealing With Architecture Clients
In 1906 the Italian economist Vilfredo Pareto discovered an interesting fact: 80% of the land in Italy was owned by 20% of the population. This uneven distribution of wealth was not a new observation, but after studying the land ownership of several different countries, he discovered that each country followed almost exactly the same percentage trend.
Exploring further, Pareto found such relationships in an astonishing number of disparate examples, such as 80% of the peas in his garden coming from 20% of the pea pods.
This natural law was dubbed the “Pareto Principle” by management consultant Joseph Juran after he came across Pareto’s original work in 1941. Juran realized that this law also applied to many aspects of business and used it in his work in the area of quality control, noting that 80% of a problem is often due to just 20% of output.
These days, the Pareto Principle is more commonly known as the 80/20 Principle as popularized in the book of the same name by Richard Koch. This principle appears to be true across many aspects of business and life:
- 80% of business profits come from 20% of customers
- 80% of sales profits can be attributed to 20% of products
- 80% of revenue is generated by 20% of sales staff
- 80% of software crashes and errors are caused by 20% of bugs
- 80% of your results are related to 20% of your tasks.
So how does the 80/20 rule apply to your architecture business? It may come into play in several different ways, as mentioned above, but let’s look at the different ways you can apply the 80/20 rule when it comes to your clients.
80% of Your Income Comes From 20% of Your Clients
Not all clients are created equal and you may well find that the majority of your income comes from just a handful of clients (or perhaps more appropriately, types of clients). You may think you know who your best clients are, but unless you’re charging the same rate for everybody, it takes a little time and research to figure out your most profitable clients.
Start by using time tracking software to measure how long you are spending each month working for each individual client. You should obviously track time spent drawing up plans, talking to builders and visiting job sites, but also time spent on emails, telephone calls and other miscellaneous administration. Make sure to track time for each individual client, so for example you shouldn’t just track “replying to emails” but rather “responding to email from client x”.
There are various different software packages that can do this for you. If you’re a sole contractor, the simplest start and stop timer programs like Toggl are probably the easiest to use. If you work in a partnership with other architects or employ staff, you’ll need to track their time too and may wish to use a more sophisticated application like Asana or Time Doctor which also gives you an analytics of your workday.
There is also software like Rescue Time that can automatically track what you’re doing on your computer and assign it to particular clients depending on rules you set. This can be a good way of time tracking if you have a tendency to forget to start and stop your timer but it’s not as accurate as tracking everything manually. You’ll also need to remember to log offline tasks manually.
At the end of the month you’ll have a nice record of exactly how many hours you spent working for each client. For more accuracy, continue this tracking exercise over several months and preferably over the lifetime of a few projects. You may already start to see that you’re working a disproportionally longer number of hours for a few clients, but time spent is only one part of the puzzle.
Bigger invoices don’t necessarily mean more profitable clients. Unless you charge a set hourly fee you’ll need to work out how much each client is really worth to you. Take your fees for each client for the month and divide it by the number of hours you spent working for them and you’ll get your hourly rate for each client.
As a result of this exercise you may realize you’re actually working at a much lower rate for some clients than you are for others. By reducing the number of hours you work for these lower paying clients, you’ll have more time to take on more profitable work and end up making more money without working more hours.
This doesn’t necessarily mean that you should fire the bottom 20% of your clients (although you may consider this in order to take on new clients at a higher rate). The important information you’ll glean from this process is which of your clients are really the most valuable. You can then focus the majority of your time and energy on them.
20% of Your Clients Cause 80% of Your Problems
Difficult clients can make your life a nightmare. You’ll probably find that it’s the same clients (or again, types of clients) month after month that are:
- Paying you late
- Making last minute changes
- Demanding deliverables on impossible deadlines
- Engaging you in time consuming and largely pointless conversations by email and telephone
- Asking for discounts
- Increasing the scope of the project without increasing their budget.
These bad clients are an unnecessary drain on your business and are taking up valuable time when you could be working on the best 20% of your clients. It’s usually pretty obvious from the start when a client isn’t going to be a good fit but sometimes relationships start out with promise and deteriorate over time.
Remember, as a self-employed contractor or architectural firm you work primarily for yourself, not your clients – you are completely in control of who you work with. Dropping problem clients will free up your schedule to concentrate on the rest of your projects and seek out some new relationships that are a better fit for your business.
80% of Your Clients Come from 20% of Your Marketing Efforts
Don’t forget the 80/20 Principle when it comes to marketing your business. Most architects find clients through a variety of different ways – through word of mouth and personal recommendations, responding to postings on job boards, entering design competitions, partnering with larger firms, via their business website or by pitching to companies and individuals directly.
Marketing and looking for new work can take up a lot of your time so it’s important not to waste your efforts on unproductive methods. Whenever you take on a new client, make a note of how they came to you and you’ll begin to build up a picture of what marketing methods are most effective for you personally.
This can help you to decide what marketing methods to spend most of your time on in future. For example, if you spend a lot of time trawling job boards and sending pitch emails but your success rate is low, you may want to refocus your efforts in another area.
You may well find that your marketing strategy changes over time. When you’re first getting started you’re likely to spend a lot of time actively hunting for work, but after you start to build up a reputation and client base, people will start coming straight to you and you’ll be able to devote more time to working rather than marketing.
20% of Communication Results in 80% of Action
When it comes to dealing with clients, you’ll probably find you spend an awful lot of time replying to the same queries over and over again, emailing back and forth and relatively little time discussing matters that are vital to the project.
Ideally you want to eliminate this 80% of pointless communication so that you have more time to spend on tasks more profitable to your business. There are a number of ways you can do this, including:
- Producing a FAQ document for new clients so you don’t repeat yourself answering common questions.
- Publishing your (non-negotiable) rate sheet to reduce negotiation time.
- Picking up the phone and make a call, which can often be quicker than emailing back and forth several times.
Remember That 80% of Your Results Come from 20% of Your Efforts
The 80/20 approach is a guideline, not a firm rule – your percentages might be closer to 60/40 or 90/10, but the same principle applies. By leveraging your most valuable clients, you could make a huge difference to your overall business profits and success. Small changes can make big differences.
Remember that if we extend the principle, 80% of jobs go to 20% of architects and you want to make sure you are in that 20%. Streamline your workflow, replace your problem clients and watch your business flourish.