Inventory glossary

What is ABC analysis?

ABC analysis is a way of sorting your products into three groups based on how much sales or value they bring in, so you can focus your time on the items that matter most.

For a small Shopify store you do not have time to manage every SKU the same way. ABC analysis tells you which products deserve close attention (A items), which need a normal check-in (B items), and which you can mostly leave alone (C items).

Use it to decide where to spend your reordering effort. Check your A items weekly, your B items monthly, and your C items every few months. This stops you from wasting time counting candles that sell twice a year while your best-selling mug runs out.

Example

A candle store has 50 SKUs. The owner ranks them by yearly sales revenue. The top 10 SKUs bring in 7,000 dollars out of 10,000 dollars total, so they become A items. The next 15 SKUs bring in 2,000 dollars and become B items. The remaining 25 SKUs bring in 1,000 dollars and become C items. The owner now checks stock on the 10 A items every week.

Common mistakes

  • Treating every SKU with the same reorder effort instead of ranking them.
  • Ranking only by units sold instead of revenue or margin, which can hide your most profitable items.
  • Setting the groups once and never updating them as sales shift with seasons.

ABC analysis and SteadyShelf

SteadyShelf forecasts demand and sets order-by dates per SKU, so you can apply that extra attention to your A items without doing the math by hand.

Work it out for your own products with our free tool: Shopify inventory reports.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

SKU rationalization · Inventory turnover · Demand forecasting · Safety stock · Dead stock

Full inventory glossary

FAQ

How many groups does ABC analysis use?

Three groups: A for your highest-value items, B for mid-value items, and C for low-value items.

Should ABC analysis be based on units sold or revenue?

Revenue or profit margin is usually more useful than units sold, since a cheap item can sell a lot without contributing much value.

Let SteadyShelf do this math for every SKU

Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.

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