How to do ABC analysis on your products

Why rank products at all

Not every SKU deserves the same level of attention. A product that drives a large share of your revenue needs tight stock control and close watching. A product that sells once a month does not. ABC analysis gives you a simple way to split your catalog into three groups so you stop treating everything the same.

The classic split

Most stores use revenue contribution over a set period, like the last 90 or 365 days. Sort every SKU by revenue, high to low, then calculate the running cumulative percentage of total revenue. A-items are usually the top group that makes up roughly 70-80% of revenue, B-items the next group up to about 90-95%, and C-items the rest. These cutoffs are guidelines, not fixed rules. Pick whatever grouping makes sense for your catalog size.

What to do with each group

A-items should get your tightest forecasting, shortest order cycles, and most frequent stock checks. A stockout here costs real revenue. B-items get standard review, maybe monthly. C-items can be reviewed less often, ordered in larger batches less frequently, or discontinued if they tie up cash without selling. Some stores also layer in margin, not just revenue, since a high-revenue low-margin item may not deserve A-item treatment.

Step by step

1. Pull a sales report by SKU for the last 90 to 365 days, including units and revenue.
2. Sort SKUs by revenue from highest to lowest.
3. Calculate each SKU's percentage of total revenue, then a running cumulative total down the list.
4. Mark SKUs as A up to about 80% cumulative revenue, B up to about 95%, and C for the rest.
5. Tag or group these in a spreadsheet or in your store admin so you can filter by class later.
6. Set review frequency by class: weekly for A, monthly for B, quarterly for C.
7. Re-run the analysis every few months since rankings shift with seasonality and promotions.

Worked example

Say a store has 50 SKUs and $100,000 in revenue over 90 days. The top 8 SKUs together bring in $78,000, so those are the A-items at 78% of revenue. The next 15 SKUs add another $17,000, bringing the cumulative total to 95%, so those are B-items. The remaining 27 SKUs only contribute $5,000 combined, so they are C-items. The store now knows to watch those 8 A-items closely and can order the 27 C-items in bulk twice a year instead of monthly.

How SteadyShelf helps

SteadyShelf does not run an ABC classification report for you. It does forecast sales and set order-by dates per SKU, so once you have classified your products elsewhere, you can use those forecasts to review A-items more often and let C-items ride with bigger, less frequent orders.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

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Related guides

• How to do cycle counts in a small store
• How to evaluate a new supplier
• How to exclude wholesale orders from your retail forecast
• How to do a physical inventory count

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