Peel Back your Product Layers to Boost Sales with the Pareto Principle!

Posted on: July 30th, 2015 by Rob Baumhover

 

HME Retailers,

When it comes to product assortment, most of us have heard about the 80/20 Rule or the Pareto Principle, but what does it actually mean?

The Pareto Principle goes as such: “80% of the outcomes come from 20% of the causes.” How does this apply to the world of HME retail? Think of it in terms of revenue and products. Then the principle states: “80% of the revenue comes from 20% of the products.”

A typical product assortment breakdown has three basic layers:

Layer One: Top Sellers
These products are your bread and butter – your top selling product categories. As mentioned, these products should generate 80% of your revenue, but should only be 20% of your total products available. If your top sellers take up a greater percentage of your total inventory, you’re spreading your business too thin. Try to hone in on what your main customer disease state is, or your most common customer product purchase.

Layer Two: Middle Sellers
These add-on type products should consist of 30% of your total product mix and account for 15% of your total revenue. These products should complement your first layer products or most treated disease state. If your most common disease state is diabetes, for example, your second layer products could include nutrition supplements, gentle fitness, or foot care.

Layer Three: Lowest Sellers
Although these products make up the majority of your product mix at 50%, they should account for only 5% of your revenue. These products should be the impulse or trend items that round out your assortment. Products that attract attention, light up or make colorful and appealing visual displays make for excellent impulse items. According to a study by Marketing Support, Inc., about one-third of all customers make a sizable impulse purchase every week, with a median purchase amount of $30. Impulse items can really give your bottom line a nice boost!

The goal for your HME, as for any retail business, is to round out your product assortment to fit within those three layers. By applying the 80/20 Rule to your product assortment, you’ll be able to identify your top selling products, supplement them with add-on items, and fill in the gaps with impulse products to reach your full revenue potential!