ABC inventory analysis

In general, businesses often find that only a few of their products account for the majority of their profits. Other products are rarely ordered, and can incur unnecessary warehousing, maintenance, or advertising costs. This can tie up cash that could otherwise be put back into your store. Lastly, there are some products that account for a few sales, but then become a top seller or occasionally receive no sales at all.

This observation is found across multiple disciplines, where most of a system's output is caused by a small amount of the input. It is commonly referred to as the 80/20 rule, or the Pareto principle.

In inventory management, an ABC analysis uses this principle and places your products into three simple categories, which help you prioritize where to focus your business efforts. If your store is on the Shopify plan or higher, then you can access theABC analysis by productreport in your Shopify admin. If your store is on the Basic Shopify or Shopify Lite plan, then you can download a reporting app with ABC analysis from theShopify App Store.

Overview

The ABC analysis divides your products into the following grades:

A-grade: These are your top-selling products, that account for around 80% of your revenue.
B-grade: These products account for 15% of your revenue. Products in this category do sometimes move into the A level or the C level.
C-grade: These products account for 5% of your revenue.

A-grade products are considered to be your most important products.

Application

Your A-grade products should be given the most attention. These are the products that account for most of your revenue, and a lack of inventory for these product could drastically hurt your sales. In contrast, your C-grade products can incur unnecessary costs if you stock more than you need, or put too much emphasis on always having them stocked.

Strategies for A-grade products

Products with an A grade account for 80% of your revenue and are your best performing products. For these products, consider using the following strategies:

Place better controls and protection on A-grade inventory to avoid damages and theft.
Always have A-grade inventory on hand. Consider keeping a backup stock of A-grade inventory, and reorder these products well before you estimate that you will run out of inventory.
Give A-grade products more visibility in your marketing content and campaigns.

Strategies for B-grade products

Products with a B grade represent a moderate percentage of your revenue. These products often fluctuate between a A grades and C grades. These products are generally not as valuable as your A-grade products, but pay attention to which products occasionally change to an A grade and which change to a C grade.

For these products, consider using the following strategies:

Always have B-grade inventory on hand. Reorder these products so that new stock arrives shortly before you estimate that you will run out.
Promote B-grade products as bundles or add-ons to A-grade products.
考虑使用tha a级产品策略t occasionally change to having an A grade.
Consider using C-grade strategies for products that occasionally change to having a C grade.

Strategies for C-grade products

Products with a C grade represent a small percentage of your revenue. They are often considered to be "dead" or "slow-moving" inventory. However, they do still account for some sales and having them sell out can lead to a poor customer experience. It is often more profitable to sell off the stock and remove the product from your catalog.