The Pareto Principle and Your Store

March 21, 2016

Marketers have long relied on the Pareto principle, or the 80/20 rule, which states that 80% of your revenue comes from 20% of your customers.

The theory is tempered by the fact that museums rely less on a local customer base than conventional retail locations do; many of us draw a lot of revenue from tourists, including international or out-of-region visitors. Our biggest spenders may only be in town once. But even if the top-20 spending group doesn’t always comprise the same individuals, if you analyze visitorship and spending, you will find that customers in that 20% have a lot in common.

Pareto people

So, how well do you know your top-20% customer? What are their demographic details: age, location, education, income, interests? Do you know what items catch their eye, or what promotions lure them back? Do you know the names of your regulars, and do sales staff recognize them on sight? Do you keep those customers in mind when buying stock, developing product, and merchandising goods on your sales floor?

One advantage that museum stores have over conventional retail stores is that most offer memberships, which are built-in loyalty programs. It’s easy to pull a report and find the names of the top ten most loyal members to your organization or to your store. Depending on your organization, you might even be able to use the membership program as a base for a store loyalty program.

Pareto products

The same 80/20 rule applies to merchandise: a disproportionately large part of your profits comes from a small percentage of your products—and, similarly, a small group of your items generate the lion’s share of your sales numbers.

I like to run an entertaining and useful “disaster scenario” exercise. Say you had to run your store from a single table or become a traveling salesperson and sell out of a box, which items would you choose to maintain as many sales as possible? What about to maintain as much profit as possible?

Knowing which 20% of items generate most of your sales and profits helps you prioritize your merchandising workflow—those are the items to keep in stock and prioritized on the reorder schedule. They’re the ones to train sales associates on, because fluency with those items is more valuable than other sales pitches. Your top 20 should also anchor your visual merchandising: keep them at eye level, easy to reach, neatly organized, plentiful, and dust-free. They may be the basis of your online sales, too, although the products that make up 80% of your online sales might not be the same group that account for most of your brick-and-mortar sales, which is beneficial to know.

Pareto priorities

While the degree of “lopsidedness” varies, keep in mind inherent inequalities: between products, between people’s abilities/talents, between project plans.

For example, my institution’s collection is skewed: if I sold reproductions of every object, a small sliver (smaller than 20%, in our case) would do the heavy lifting in terms of consumer interest. Knowing how your visitors select the top 20% “most interesting” pieces or exhibits tells you what to prioritize for product development.

The same is true of many other parts of your business. The proportions will vary: staffing, for example, is more balanced—80% of transactions aren’t made by 20% of my sales team—but rarely is any area of a business truly uniform, and understanding imbalances makes them easier to work around. Maybe 40% of a staff is responsible for 60% of sales, and you can find ways to promote and reward that 40% while training and encouraging the other 60%.

The Pareto principle can also be a relief in terms of time and energy. Rather than spending 80% of your workday on issues that fall in the 20% on returns, drop projects and ideas whose potential benefit falls outside that top range and focus on high-yield activities. Maybe eliminate a line that looks great on the floor but doesn’t turn over. Perhaps let go of an entire department or category of goods. Have you noticed a “special spot” in your shop that generates extra sales? Keeping imbalance in mind and working the natural skew of your store makes tasks less daunting and helps you manage the many roles required of museum store professionals.

Julie Steiner is Director of Retail Operations at The Barnes Foundation and the MSA Board of Directors Second Vice President.