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/ 1.18.2019 / News

How the 80/20 Rule Helps Manage Inventory in your POS Software Effectively

Efficient inventory management is key to successfully operating a retail store. This is accomplished by ensuring each dollar invested in your store’s inventory is effectively earning margin dollars by using advanced pos systems.

Have you ever heard of the 80/20 rule, also known as the Pareto principle? It is a concept that has been applied to almost every element of life, and it applies equally well to retail. The 80/20 rule states “that, for many events, roughly 80% of the effects come from 20% of the causes.” In a retail setting, it means 80% of the margin is generated from 20% of the department’s inventory.

Let’s look at how this simple rule can help you manage unproductive inventory — resulting in a significant increase in inventory turns and increase your return on investment percentage.

Begin by running a best seller report, generated within your POS software. Identify items in these three areas: top 80%; middle 15%; and bottom 5%. The best seller report should rank items for a department by margin dollars earned during a selected period.

POS Software Best Seller Report Generated 80 20 Rule

Once you have identified the three groups of items, then you can assess the items and make adjustments accordingly. Here are our suggestions:

    • Promote those items that make up the top 80% of margin (and make sure you keep plenty on hand for people to purchase).
    • Merchandise or discount the bottom 5% of margin (and do not reorder these items).
  • Selectively review the middle items, and limit your inventory investment on those items.

POS Software Best Seller Report 80 20 Rule

It may be difficult for some retailers to part with inventory that they feel will eventually move, but using the 80/20 rule from an unbiased perspective can help the bottom line. We like to say “the bottom 5% will never be missed.”

The use of the 80/20 rule in regards to retail, combined with an effective point of sale software will help you maintain a lean, yet lucrative inventory.

Have you explored point of sale systems with advanced reporting capabilities? Try a 30-day free trial of POSIM to see how reporting can help you increase sales and manage inventory efficiently.

posim pos software manage inventory

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Beer' >Liquor, Wine &amp; Beer</option><option value='Needlearts' >Needlearts</option><option value='Quilt, Fabric &amp; Sewing' >Quilt, Fabric &amp; Sewing</option><option value='Outdoor' >Outdoor</option><option value='Other' >Other</option></select></div></li><li id='field_16_11' class='gfield field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_16_11' >CAPTCHA</label><div id='input_16_11' class='ginput_container ginput_recaptcha' data-sitekey='6LcWicwZAAAAAF6_JZFIf_bEpNSyHe5AsCdrkgmD' data-theme='light' data-tabindex='-1' data-size='invisible' data-badge='bottomright'></div></li><li id='field_16_15' class='gfield gform_validation_container field_sublabel_below field_description_below gfield_visibility_visible' ><label class='gfield_label' for='input_16_15' >Name</label><div class='ginput_container'><input name='input_15' id='input_16_15' type='text' value='' /></div><div class='gfield_description' id='gfield_description_16_15'>This field is for validation purposes and should be left unchanged.</div></li> </ul></div> <div class='gform_footer top_label'> <input type="submit" id="gform_submit_button_16" class="gform_button button om-trigger-conversion" value="Send My Resource" tabindex="93" onclick='if(window["gf_submitting_16"]){return false;} window["gf_submitting_16"]=true; ' onkeypress='if( event.keyCode == 13 ){ if(window["gf_submitting_16"]){return false;} window["gf_submitting_16"]=true; jQuery("#gform_16").trigger("submit",[true]); }'> <input type='hidden' name='gform_ajax' value='form_id=16&amp;title=&amp;description=&amp;tabindex=88' /> <input type='hidden' class='gform_hidden' name='is_submit_16' value='1' /> <input type='hidden' class='gform_hidden' name='gform_submit' value='16' /> <input type='hidden' class='gform_hidden' name='gform_unique_id' value='' /> <input type='hidden' class='gform_hidden' name='state_16' value='WyJbXSIsIjFmYmJkMmM5NDAyMGYzNTJmZGM3MmU0ODNlNDM2YjBmIl0=' /> <input type='hidden' class='gform_hidden' name='gform_target_page_number_16' id='gform_target_page_number_16' value='0' /> <input type='hidden' class='gform_hidden' name='gform_source_page_number_16' id='gform_source_page_number_16' value='1' /> <input type='hidden' name='gform_field_values' value='guide=countdown-to-the-holidays' /> </div> </form> </div> <iframe style='display:none;width:0px;height:0px;' src='about:blank' name='gform_ajax_frame_16' id='gform_ajax_frame_16' title='This iframe contains the logic required to handle Ajax powered Gravity Forms.'></iframe> <script type='text/javascript'>jQuery(document).ready(function($){gformInitSpinner( 16, 'https://posim.com/wp-content/plugins/gravityforms/images/spinner.gif' );jQuery('#gform_ajax_frame_16').on('load',function(){var contents = jQuery(this).contents().find('*').html();var is_postback = contents.indexOf('GF_AJAX_POSTBACK') >= 0;if(!is_postback){return;}var form_content = jQuery(this).contents().find('#gform_wrapper_16');var is_confirmation = jQuery(this).contents().find('#gform_confirmation_wrapper_16').length > 0;var is_redirect = contents.indexOf('gformRedirect(){') >= 0;var is_form = form_content.length > 0 && ! is_redirect && ! is_confirmation;var mt = parseInt(jQuery('html').css('margin-top'), 10) + parseInt(jQuery('body').css('margin-top'), 10) + 100;if(is_form){jQuery('#gform_wrapper_16').html(form_content.html());if(form_content.hasClass('gform_validation_error')){jQuery('#gform_wrapper_16').addClass('gform_validation_error');} else {jQuery('#gform_wrapper_16').removeClass('gform_validation_error');}setTimeout( function() { /* delay the scroll by 50 milliseconds to fix a bug in chrome */ jQuery(document).scrollTop(jQuery('#gform_wrapper_16').offset().top - mt); }, 50 );if(window['gformInitDatepicker']) {gformInitDatepicker();}if(window['gformInitPriceFields']) {gformInitPriceFields();}var current_page = jQuery('#gform_source_page_number_16').val();gformInitSpinner( 16, 'https://posim.com/wp-content/plugins/gravityforms/images/spinner.gif' );jQuery(document).trigger('gform_page_loaded', [16, current_page]);window['gf_submitting_16'] = false;}else if(!is_redirect){var confirmation_content = jQuery(this).contents().find('.GF_AJAX_POSTBACK').html();if(!confirmation_content){confirmation_content = contents;}setTimeout(function(){jQuery('#gform_wrapper_16').replaceWith(confirmation_content);jQuery(document).scrollTop(jQuery('#gf_16').offset().top - mt);jQuery(document).trigger('gform_confirmation_loaded', [16]);window['gf_submitting_16'] = false;}, 50);}else{jQuery('#gform_16').append(contents);if(window['gformRedirect']) {gformRedirect();}}jQuery(document).trigger('gform_post_render', [16, current_page]);} );} );</script><script type='text/javascript'> jQuery(document).bind('gform_post_render', function(event, formId, currentPage){if(formId == 16) {if(typeof Placeholders != 'undefined'){ Placeholders.enable(); 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[gravityform id="17" title="false" description="false" ajax="true" tabindex="88"]
<div class='gf_browser_unknown gform_wrapper' id='gform_wrapper_17' ><div id='gf_17' class='gform_anchor' tabindex='-1'></div><form method='post' enctype='multipart/form-data' target='gform_ajax_frame_17' id='gform_17' action='/blog/sell-right-stuff-pos-software/#gf_17'> <div class='gform_body'><ul id='gform_fields_17' class='gform_fields top_label form_sublabel_below description_below'><li id='field_17_6' class='gfield gform_hidden field_sublabel_below field_description_below gfield_visibility_visible' ><input name='input_6' id='input_17_6' type='hidden' class='gform_hidden' aria-invalid="false" value='https://app-3QNL6WU154.marketingautomation.services/webforms/receivePostback/MzawMDG3NDO0AAA/' /></li><li id='field_17_7' class='gfield gform_hidden field_sublabel_below field_description_below gfield_visibility_visible' ><input name='input_7' id='input_17_7' type='hidden' class='gform_hidden' aria-invalid="false" value='0994ba05-06b3-460d-b11c-4f3b11093ec9' /></li><li id='field_17_8' class='gfield gform_hidden field_sublabel_below field_description_below gfield_visibility_visible' ><input name='input_8' id='input_17_8' type='hidden' class='gform_hidden' aria-invalid="false" value='POSIM' /></li><li id='field_17_11' class='gfield gfield_contains_required field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_17_11' >First<span class='gfield_required'>*</span></label><div class='ginput_container ginput_container_text'><input name='input_11' id='input_17_11' type='text' value='' class='large' tabindex='88' placeholder='First Name' aria-required="true" aria-invalid="false" /></div></li><li id='field_17_10' class='gfield gfield_contains_required field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_17_10' >Last<span class='gfield_required'>*</span></label><div class='ginput_container ginput_container_text'><input name='input_10' id='input_17_10' type='text' value='' class='large' tabindex='89' placeholder='Last Name' aria-required="true" aria-invalid="false" /></div></li><li id='field_17_2' class='gfield posim-email gfield_contains_required field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_17_2' >Email<span class='gfield_required'>*</span></label><div class='ginput_container ginput_container_email'> <input name='input_2' id='input_17_2' type='text' value='' class='large' tabindex='90' placeholder='Email' aria-required="true" aria-invalid="false" /> </div></li><li id='field_17_3' class='gfield posim-phone gfield_contains_required field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_17_3' >Phone<span class='gfield_required'>*</span></label><div class='ginput_container ginput_container_phone'><input name='input_3' id='input_17_3' type='text' value='' class='large' tabindex='91' placeholder='Phone' aria-required="true" aria-invalid="false" /></div></li><li id='field_17_5' class='gfield posim-industry gfield_contains_required field_sublabel_below field_description_below hidden_label gfield_visibility_visible' ><label class='gfield_label' for='input_17_5' >Your Industry<span class='gfield_required'>*</span></label><div class='ginput_container ginput_container_select'><select name='input_5' id='input_17_5' class='large gfield_select' tabindex='92' aria-required="true" aria-invalid="false"><option value='' selected='selected' class='gf_placeholder'>Your Industry</option><option value='Apparel' >Apparel</option><option value='Hobby' >Hobby</option><option value='Household' >Household</option><option value='Liquor_Wine_Beer' >Liquor, Wine &amp; 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}} } );jQuery(document).bind('gform_post_conditional_logic', function(event, formId, fields, isInit){} );</script><script type='text/javascript'> jQuery(document).ready(function(){jQuery(document).trigger('gform_post_render', [17, 1]) } ); </script>