So many retailers struggle with what to order and when to have it in stock. Here is a simple trick to help retailers understand what really moves their business forward.
The Pareto Principle, or the 80/20 Rule, teaches us that 80% of our results come from 20% of the effort. For example, 80% of profit will come from 20% of the products offered. 80% of a technician’s time is spent on 20% of the services offered. Even 80% of sales are attributed to 20% of the staff. The percentages may not always be as clear cut as 80/20 but the idea that a large percentage of results come from a small percentage of work holds true.
Before retailers place an order it is a healthy exercise to run a Pareto analysis of the products they sell. This will help determine where to place focus.
Here is a Pareto analysis that was performed for a bike retailer. It shows that nearly 83% of their profit comes from 4 of the 12 bicycle categories they sell. They earned the bulk of their money, $152,895 dollars, from the sale of 555 bikes and building and extra 189 bikes only brought in $32,016.
Here is a tutorial on how to perform a Pareto analysis of your own.
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