How the 80/20 Rule Can Help Your Business

If you’re engaged in selling handmade work, it’s good to know where your business comes from. This rule of thumb shares some insightful information.


The 80/20 rule


The 80/20 rule (also known as the “Pareto Principle”) exists because it often works consistently. It gives you a starting place to analyze results in your handmade business, and make improvements.

The rule has a number of applications. It states that approximately 20% of your customers account for 80% of your sales. Take a look at your wholesale accounts and see if this is so for you. This fraction of your base is extremely important. Take care of them by building strong relationships, staying in touch and offering new product when they are ready to buy – and learn more about them.

Evaluate that top 20% to see what those customers have in common. Are they a particular type of store? Are they in a similar geographic location? Are they urban, suburban, or rural? What characteristics tie them together? This gives you a profile for prospecting for other great wholesale customers who will do well with your line.

The principle also states that about 20% of your line accounts for 80% of your sales. You have bestsellers (the top 20% of products that sell and sell) and you have some in the middle. Then, there are designs that don’t sell so well, and may be headed into a new category, namely discontinued. Keep those bestsellers, because they are earning for you. You must always have enough product to make a great display, and designs to add when you are increasing your presence in a store, so you must have a critical mass. Most pieces won’t be in the top tier – but you need them anyway.

Your bestselling 20% of products will give you a base to build upon, design-wise. What great sellers can you create a collection around? Flesh out the most popular looks and offer your customers additional products based on them.

If your business is healthy and viable, each year you will need to replace about 20% of your accounts which will not reorder from you. Perhaps they have gone out of business, are giving your line a rest, or are not satisfied with sales of your work. That means that you need to be prospecting and marketing on an ongoing basis, to replace that loss due to attrition and to add more accounts to your base.

As you evaluate your sales, your activities and your success throughout the year, take a deep look and see where the 80/20 rule applies to your own business. Then, take actions using your knowledge of this principle to make decisions moving forward.


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