Tom Feltenstein

So you say you’ve created a product or service that everyone loves. There isn’t one person on this planet that doesn’t want or need what you have to offer, right? Fat chance. In a perfect world this may be the case, but in the real world this doesn’t exist. No matter how hard you try you can’t please everyone. Yet businesses can get caught up in wanting to offer something for everyone and this can lead to less profit rather than more.

One of the hardest things to do is to eliminate inventory or services to increase profit because on the surface it seems so counter intuitive. However, it is a well known fact that restaurants with smaller menus are more profitable than those with large menus because they do tremendous volume on those few items that make them money rather than having cash tied up in product sitting on the shelf waiting for the occasional order. The same is true of retail. If you own a boutique specializing in ladies shoes, does it make sense to also offer a lot of other accessories like purses, hats and jewelry just because you can? How much of this inventory will end up in a clearance bin or gathering dust on a shelf?

In any business it is vital to make a continual assessment of what’s selling and what’s not and adapt to the behavior of your consumers. Remember that for most businesses 80% of your revenue comes from just 20% of your customers. In the case of the shoe boutique, you can bet that all of your customers need shoes whereas only a few may need a hat even though everyone talks about how beautiful they are. Are you spending valuable dollars on inventory that goes stagnate because you’re trying to please the largest group of customers that are likely to be only producing a small fraction of your revenue?

We have to understand the most profitable segments of our customer base in an effort to increase revenue. Think about your customers and try to understand their actual behavior – not the behavior you want them to have. I see many business owners that have the idea that more is always better, but if it doesn’t make you more profitable, is it really better? Don’t base your decisions on assumptions of how you think your customers behave as that is the fastest way I know to go broke. Evaluate what is selling and what is not and let the facts dictate what you put in your store.