First, I pull all transactions for the past year.
Second, I run frequency distributions. There are three key metrics I look for:
- Top 5% of Annual Demand.
- Top 5% of Annual Items.
- Top 45% of Annual Demand.
With these three attributes, I create five item segments.
- "A" = Item is in top 5% of annual demand and top 5% of annual items.
- "B" = Item is in top 5% of annual demand, is not in top 5% of annual items.
- "C" = Item is not in top 5% of annual demand, is in top 5% of annual items.
- "D" = Item does not qualify for A/B/C, but is in top 45% for annual demand.
In this framework, A/B/C items account for between 50% and 60% of demand, but account for just 6% to 9% of all items. This small number of items dictate the success of your business. If you don't develop new A/B/C items today, you don't have existing A/B/C items tomorrow.
The biggest predictor of business success, in my projects, is the ability of a business to continually infuse the brand with a steady diet of new A/B/C items.