« Back to Blog

The 80/20 Rule; or Why Do I Have 24 Cans of Cream of Mushroom soup?

"Mind Your Business", by Sheila McCumby. May, 2023

While spring cleaning the kitchen pantry I noticed that for some reason, we had 24 cans of cream of mushroom soup. I knew I hadn’t purchased them; we had a mystery to solve…

Me: Hey Honey? I really appreciate your help with the grocery shopping, but somehow, we’ve ended up with a plethora of cream of mushroom soup. Did you want me to make something with it? The kids don’t like it, but I sneak it into casseroles sometimes; I figure the less they know about my midwestern cooking secrets, the better; they haven’t found me out yet.

Him: Oh geez! I thought you loved it, whenever I’m in the soup aisle, I buy you a couple cans.

Me: That’s thoughtful, but honestly, I’m more of a tomato soup fan. All this cream of mushroom soup will make a lifetime supply of funeral potatoes.

Him: Silver lining: Maybe we can get the kids to do a funeral potato stand, like a lemonade stand, but with gloopy potatoes instead?

Me: Great idea! Nothing quite satisfies your thirst on a hot day like a big dish of carbs with cheddar cheese on top. We’ll make a fortune!

We laughed about it, and donated the soup to our local food bank.

This mushroom soup scenario can happen in a business. A few years ago, I was consulting with a gallery owner to help organize their shop and ascertain why profits had plummeted. In the first hour of sorting their mat board I found 9 day-glow pink mats, which had not sold in the past 3 years. Thank goodness they were discontinued, or they would have probably ordered more! As I dug deeper, it got worse. I was shocked to find that they had accumulated upwards of $20,000 in discontinued and duplicate materials that were seldom used. Conversely, they were always out of the components in high demand. There is a technical term in the business world for this situation; it’s formally known as “a warehouse full of junk.” The real life 80/20 rule had played out in front of me. If you don’t manage your inventory, your inventory will manage you, and poor inventory management can cripple a business.

Projected sales should be based on accurate historical sales figures. Managing your inventory will not only keep your shop running smoothly; but will help keep you up to date on where you stand financially, FrameReady has amazing tools to track your inventory; at the click of a button, you can get a real time financial snapshot.

The 80-20 Rule
Fig.1 - In your shop, 20% of your components likely make up for 80% of your sales. The ratios may slightly vary, but there is nearly always a predictable imbalance.

1. What is the 80/20 Rule?

Fun Fact that will maybe help you win a pub quiz: In 1897 an Italian economist named Vilfredo Pareto noticed that 80% of the land in England was owned by 20% of the population. He developed an economic theory called predictable imbalance, and it applies to many facets of modern life. In your shop, 20% of your components likely make up for 80% of your sales. The ratios may slightly vary, but there is nearly always a predictable imbalance.

2. Determining your Top 20%

It is easy to determine your top selling moulding and mat boards by utilizing FrameReady’s work order reports. In addition to analyzing what is selling, it’s also important to take a look at what is not selling. Frames are like furniture; styles change frequently. Stay on top of trends and recognize that while minimalism and mid-century modern is in vogue now, 1980s styles may come back next year… for those of us who lived through the 80’s let us bow our heads and pray that never happens… flashbacks of peach and teal… yikes! (Shudder…)

3. Purge the Clunkers

FrameReady’s inventory tracks when the last time a moulding was used. If you have moulding or matboard sitting around your shop that is more than a year old, it’s probably time to dump it at a discount, reinvest that capital and use that valuable storage space for something that sells.

4. Set up Regular Maintenance, Repair and Replacement Schedules for your Equipment

Your equipment is part of your inventory, and you have made a significant investment in tools that are critical to running your business. Read your owner’s manuals and schedule recommended maintenance. Compressors need to be frequently drained, saw blades sharpened, filters changed, wall cutters lubricated, computers and software updated, etc. Taking good care of your tools, and teaching your employees to treat them with care will save you future heartaches; tools always seem to break at the busiest time.

5. Appoint an Inventory Manager

Depending on the size of your business, you may want to assign an employee the responsibility of being in charge of inventory management. Set up a regular time to review inventory with them, set goals for culling the poor sellers and fine tune your ordering process so that you are never out of your top sellers. Make it a practice to use the last 30 minutes of the day as “clean up” time. Label and put away components, make sure everything has a home. A clean, organized shop saves time, frustration and money.

6. Accounting for Shrink, Damage, and Loss

A friend of mine seemed to be losing money in what should have been a very profitable shop. One night he received a heartbreaking video text from an employee who forgot her purse and had returned to the shop after hours. She discovered their long-term framer loading large amounts of framing supplies into his minivan. Sadly, this thief had a side-hustle framing for his own set of clients he had poached from his employer. Due to poor accounting and lack of inventory control, they had no idea this was happening. They were literally paying this guy overtime to steal materials and customers. They estimated that this bad apple had probably stolen upwards of $50,000 in materials over the years, but since they didn’t have accurate inventory, they couldn’t prove it to the authorities, and the thief went unpunished.

In Conclusion...

Accurate inventory accounting is the key to running a successful business. Getting your inventory under control will take some time; so be realistic. Set a goal of devoting an hour a day before your shop opens of inventorying and organizing a small area. In a few weeks’ time you will be amazed how much can be accomplished… and hopefully you’ll be able to see increased profits as you purge the “cream of mushroom soup” from your shop.

"Mind Your Business", by Sheila McCumby, May, 2023