If you run a company with more than 50 SKUs and you have not done an 80/20 analysis, you are almost certainly subsidizing unprofitable products with your winners.
Step 1: Pull the Data
You need product-level profitability. Not revenue. Profitability. That means gross margin at minimum, and ideally fully loaded contribution margin that accounts for the operational complexity each product creates.
Step 2: Rank and Segment
Sort products by margin contribution, highest to lowest. Draw the line at 80% of total margin. Everything above that line is your critical 20%. Everything below is your trivial 80%.
Step 3: Analyze the Tail
Look at the bottom 80% of your products. How much warehouse space do they consume? How much engineering time? How many customer service calls do they generate? How much sales effort goes into products that will never be meaningfully profitable?
This is what I call the complexity tax. Every SKU costs something to maintain, even if it technically shows a small positive margin on paper. When you account for the hidden costs, many of those products are net destroyers of value.
Step 4: Decide and Act
You have three options for every product in the tail: fix it by raising prices or reducing cost, migrate the customer to a more profitable alternative, or sunset it entirely.
When we ran this at a $700 million industrial company, the results were staggering. Entire product families were consuming resources without contributing meaningful margin. Eliminating them freed up capacity, simplified operations, and accelerated growth in the products that actually mattered.
Do not try to do this across the entire portfolio at once. Start with one business unit or one product family. Prove the model. Then expand.
Book a strategy call at the8020institute.com to find the right program for your company.