Robust ThemeDec 09, 2019 2020-04-08 7:40
How to Use the 80/20 Rule as a Hobby Game Store
The 80/20 rule of inventory management postulates that 80 percent of the results from any event are produced by 20 percent of the efforts. When applied to inventory: 80 percent of profit is made from 20 percent of a business’ products or services.
Most hobby game stores carry trading card games, board games, toys & figurines, comics, miniatures, and the accessories needed for all of them. But which of these products produce the vast majority of a hobby game store's profit?
We’re going to discuss the importance of the 80/20 rule to inventory management—as well as how to implement this rule in your friendly local game store.
An Example of the 80/20 Rule
The 80/20 rule can be applied to any event. It is helpful for analyzing whether or not the efforts of something are supported by the produced results.
For example: a hobby game store owner wants to host an MTG Prerelease Draft event. The store owner puts 80 percent of their time and energy into preparing for the event: everything from cleaning and setting up tables to choosing prizes and training their staff.
The owner puts 20 percent of their time and energy into actually promoting the event and selling tickets. They have tickets for sale in-store and online. To promote the event, they include a flier with in-store purchases and share the details of the event on social media.
When it comes time for the Prerelease Draft, tickets have sold out and the store is full of excited Magic: The Gathering players. It might be tempting to argue that the store owner wasted 80 percent of their efforts, because only 20 percent of their efforts (promoting the event and selling tickets) directly produced the outcome of a sold-out event.
Yet, had the game store owner only put effort into promoting and selling the event, there would have been no event to attend and enjoy.
The 80/20 rule suggests that it is in the game store owner’s best interest to be as efficient as possible with the tasks that required 80 percent of their time and energy. Ideally, the owner is able to reduce the amount of time and energy required to prepare (without sacrificing quality) for the event. In this case, doing so would provide the owner with time for more important aspects of the business.
Using the 80/20 Rule to Improve Inventory Management
For hobby game stores, positive cash flow is essential to long-term sustainability. One of the greatest barriers to positive cash flow is stagnant stock. If all of a business’ money is tied up in inventory, cash flow problems will inevitably arise. The 80/20 rule provides owners with a way to analyze inventory and determine how to reduce both overstocking and stocking-out.
A hobby game store would feel empty without a wide variety of products lining its shelves. But game store owners will be the first to say that trading card games and miniatures are (generally) the easiest to sell. These products, in many instances, represent the 20 percent of efforts that result in 80 percent of a store’s profit.
Identifying the 20 percent of products that represent 80 percent of profit in your business is the first step. Immediately, this information informs a business as to which products deserve to be consistently well-stocked and promoted.
The next step is to review the remaining 80 percent of products, and identify what products are midrange performers. These are items the store should put attention on making more profitable. This can be done through promotion, shifting store placement, creating events, offering discounts, and generally making the items more appealing.
The bottom 30 percent of products should be reviewed as well. There are many factors to consider with these items:
- Are these items necessary to the store? Should I stock less or remove them entirely?
- For example: Does board game profit justify the space they require? Would freeing up some of the space allow more event ticket sales?
- Are these items preventing positive cash flow? Would a clearance sale be beneficial?
A store may decide to discontinue entire product offerings from this review. When properly utilized, the 80/20 rule improves the potential profitability of a store’s products.
Long-Term Inventory Management
Ultimately, a software that allows the business to easily track inventory is essential. Utilizing the 80/20 rule to review inventory and sales is an ongoing project. Consider reviewing stock in this way monthly or quarterly to track progress and noticeable improvements.
BinderPOS offers a range of dashboards and reporting tools for tracking stock purchasing, buylists and advertising across multiple channels—in-store and online. As a complete point-of-sale system with a plethora of game-store specific features, BinderPOS is an ideal software for reviewing a store’s best performing products and adjusting accordingly. Book a demo to learn how our system can work for your store.