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Ruling Revenue with the 80/20 Rule

By Tami Ben-David March 7, 2016
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About the Author

A British ex-pat, Tami been writing and content-strategizing for Israeli tech start-ups for the last 5 years. When she's not writing nerdy content, you can find Tami on open water charity swims or traveling to far-flung countries.

Understanding the 80/20 Rule is probably one of the best gifts you can give yourself as an Amazon Seller. If followed properly, it guarantees to increase your sales and minimize your efforts. Are you interested in boosting your sales?

Let’s jump right in to helping you understand the wonderful world of Ruling Revenue with the 80/20 Rule, a concept that can truly change the way you approach selling forever.

The Pareto Principle

The 80/20 Rule goes by many names (The Pareto Principle, the law of the vital few or the principle of factor sparsity, among others) and applies to various real-life situations, but the concept remains the same. Whether you’re talking about a population’s wealth, problem-solving techniques, or garden vegetation, the principle is this: 80% of the outcome is generated by 20% of the resources.

In eCommerce, this means that 80% of your revenue comes from 20% of your customers or products. Those are powerful numbers that can transform the way you do business if you wield principle properly. Check out how easily you can use 80/20 to turn your high profit items into real money-makers.

Say That Again in English, Please

Before we apply this principle to Amazon selling, let’s clarify some things. Firstly, realize the 80/20 Rule is not gospel. Those aren’t always the figures you’ll see. Sometimes it’ll be 90/20 or 80/30 or even 100/15 – the exact percentages don’t matter because it doesn’t have to equal 100% of your revenue.

It’s the concept that we’re working with, that the majority of your revenue will come from a small minority of your items. With this in mind, you can reassess the way you approach item listings, inventory stocking, and pricing.

The Business of Making Business

Now that we understand the concept, we can utilize the Pareto Principle to maximize our efficiency in business. If a small percentage of our items yield the majority of our revenue, then we should be focusing more of our resources on that smaller segment. Here’s what this looks like in a nutshell.

Segment your products according to volume of sales and profitability. Notice which SKUs are killing it (in a good way). According to the rule, you should see surprising results. Your hottest selling items are taking up a small percentage of your inventory. Of course, as the market fluctuates you’ll need to reassess your gains from these items. Periodically, repeat the segmentation step to see what’s generating the most revenue for you during the new season or sales cycle.

Amazon Tip: If you aren’t already, get on board with FBA because this is the gateway to Prime customers, the 20% of customers generating the most sales.

Sure, I’ll Do That in My SPARE Time

The trouble is that assessing, managing, scouting, and repricing is more time-consuming than any business owner can handle. Fortunately, there’s an easy solution for all those tasks. Apply a repricing and inventory management software so that your big ticket items can be pinpointed, promoted, and monetized in the most efficient and constant way possible.

Knowing which items are your biggest sellers helps you keep those successful products constantly in stock, and the repricing algorithm will ensure that these are always on the front page. The software will also help with the rinse and repeat step of the process, as well as with identifying which items should be headed for liquidation.

Bottom Line

The biggest takeaway you can get from the 80/20 Rule is proper resource allocation. Spend the majority of your resources on the few items that are bringing you the most revenue, and minimize your efforts on the rest. This will increase revenue rather than hurt it and save you time and effort as well.

Let repricing software take the labor out of this principle, and you can enjoy some major profits faster.

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