The Pareto principle in assortment formation

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In 1905, an Italian engineer and economist established a connection between pea yield and resource distribution in the economy. He determined that 80% of the harvest comes from 20% of the pods. Later, the economist came to the conclusion that this principle could be applied in a variety of areas. For example, 20% of all companies saudi arabia mobile number produce 80% of the goods on the market, and a fifth of the world's population owns the main financial assets.

The universal Pareto principle can be formulated as follows: a greater part of the final result is provided by a smaller amount of expended resources or applied efforts. Let us note the conditional nature of the proportion proposed by the Italian economist: 20/80. It should be considered as a mnemonic rule that shows the imbalance between the expended resources and the obtained result. At the same time, the Pareto principle operates in any sphere of human activity. In our material, we will apply it to the assessment of the range of goods.




The Pareto principle in assortment formation

80% of sales revenue comes from 20% of items. Most customers don't buy many items, but the bulk of the revenue comes from about 20% of customers. This rule of thumb helps you understand which product list items and store visitors are the most valuable.

Taking into account the "20/80" principle, it is possible to increase revenue, reduce costs, optimize the formation of product range and the management of warehouse or retail space even at a small point of sale. Companies that own retail chains attract a large number of employees for such an analysis and implement advanced digital systems.

What should a small store do if it wants to optimize its product line but cannot afford to employ a separate specialist to form the product range? The solution may be to implement specialized software (for example, 1C or other similar programs).