Chip MacGregor

December 3, 2013

The Pareto Principle


Vilfredo Pareto was a Paris-born Italian, from a prominent exiled Genoese family, famous in his own day as a social economist. He is often referred to as the first modern economics professor, and he more or less developed microeconomics as a discipline. But what he’s best known for is the principle of factor sparsity — what we usually refer to as “the 80/20 rule.” Pareto noticed that 80% of the peas in his garden came from about 20% of the pea pods. He determined that 80% of the wealth in Italy was held by roughly 20% of the population. And, when looking at the Italian tax structure, he noticed that 80% of the government’s income came from just 20% of the taxpayers.

Sometimes referred to as “the law of the vital few,” the Pareto Principle is found in many of the organizations you belong to. For example, 80% of the work done at your church is performed by about 20% of the members. 80% of the money raised by the non-profit you belong to is donated by 20% of the givers. And, if you work in publishing, 80% of the income your publisher makes comes from 20% of the books. (Which, if you think about it, means there is significant factor sparsity in book publishing, since 80% of the titles released this year will produce very little income for publisher and author.) Pareto noted that most every element tied to finances is ruled by a vital few (which he referred to as “the elite,” thus popularizing the term), and that it’s the success of those vital few that allows the rest of the category to persist.

Here’s why you need to understand that as an author: Your publisher is going to release a LOT of books this year. A mere 20% of them are going to generate 80% of the publisher’s income, so of course your publisher is going to invest a lot more marketing dollars into those few titles. But you don’t want to decry that. The very fact they’re doing it makes them successful, and allows them to have the ability to do all those other titles… including yours. So don’t be discouraged when the next James Patterson book gets a million dollar marketing campaign, and you find it hard to get the publicist to send out review copies of your book. Just thank your lucky stars they’ve got a James Patterson novel, and that you live in an era when marketing avenues are wide open to all (not just the elite), so you can give your own book the royal treatment. You can do blog tours, go onto social media, generate reviews and buzz, write articles, do interviews, support it with media, buy ads — the list of potential marketing opportunities is endless to the contemporary author.

When I worked for a publisher, we released books in spans. There were maybe 15 books in a span, and we pretty much expected ten of those books to lose money. We expected two of the books in that span to break even, and perhaps two more to make a bit. But we always had one big book in a span — one breakout author or title that we knew would generate enough money to cover the costs of all those other titles, and therefore keep us in business. And on occasion one of those other titles would also bust out, a new star would be made, and that was going to allow us to generate even more books in the future. That’s the economics of publishing in the real world. So don’t fight it — rejoice that there are authors doing great in this business, since they’re helping you keep busy at your art, and then determine to be one of the 20% who work hardest at marketing, in order to make your books part of the “vital few.”

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  • Hi Chip!

    I find this to be a very interesting discussion. I’ve heard of the 80/20 rule but had never heard how it applied to the publishing industry. While I’m not sure I like the idea of MY book maybe being the one my future publisher thinks they’d lose money on, I certainly would be grateful for that breakout author who allowed me to hang onto their book jacket as we ride that success tide together…;~)

    Donna L Martin

  • Jane Gaugler Daly says:

    When you released the 15 or so books in the span, did you predict which ones would lose money? I’m working with a small publishing house for my first NF book. Now you have me wondering if they’re thinking, “we’ll publish this, but it won’t make any money.” If that’s the case, why would they want to publish it? Confused…

  • Very true! Thanks for the gentle reminder for authors and the encouragement!

  • Ron Estrada says:

    Good stuff, Chip. It’s amazing how quickly we forget these basic principles. In my own company, our two biggest customers generate most of the revenue. But we spend an equal amount of time working on the smaller contracts. You never know where your next big breakthrough will come from. Publishers understand this. We should be grateful that they’re willing to give us a chance when it could take years before we turn a profit for them.

  • Tanya Dennis says:

    I don’t know if this makes me feel better or worse, but it makes sense. A lot of sense. You’re never one to pull punches, and I appreciate that. So, THANKS. 🙂

    • chipmacgregor says:

      You’re welcome, Tanya. And again, this isn’t something to be sad about — it’s just reality, so we accept it and find ways to succeed.

  • Kathy Nickerson says:

    Well, this is brilliant! Thank you for the shift in perspective.

  • Julie Coleman says:

    This is excellent, Chip. I’m so glad I read it. I’m very grateful that I was allowed to publish at all, knowing that I am one of those “nobodies” that is riding on the coattails of Max Lucado and Donald Miller. This “policy” allowed me to work with an awesome publisher with outstanding distribution to get my message out into the reading world. It also explains a lot of the marketing tactics I have observed. Great perspective.

  • Ane Mulligan says:

    You make a good point, Chip. And we should all learn as much as we can about marketing so we can up our efforts on our own behalf.

    • chipmacgregor says:

      Thanks, Ane. And yes — every author can thrown himself or herself into marketing these days.

  • Rick Barry says:

    Makes sense to me, Chip. If I were a publisher, I’d invest most of my marketing budget in the products that yield the most return. As an author, I’m glad for each house that publishes the big names, but also accepts submissions from a few of us lesser-knowns, even if on an experimental basis.

    • chipmacgregor says:

      Glad you liked this, Rick. And yes — it’s the big accounts that make the rest of the business run.

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