How to Interpret an ABC Analysis Report for Your Shopify Store
Learn how to prioritize your inventory management process based on the highest-value items in your store.
Published November 1, 2023.
Strategic inventory management is essential for eCommerce businesses, and ABC analysis is a powerful tool for understanding and focusing on high-value products. Each year inventory distortion costs retailers $818 billion, highlighting the need for effective inventory management practices. Let's take a closer look at the importance of ABC analysis and how you can interpret it to maximize your revenue.
Meet the Expert
Jameela Ghann is a seasoned online store owner with over a decade of eCommerce experience. Apart from running Alora Boutique, she's also the marketing manager for Fera Product Reviews.
What Is ABC Analysis?
ABC analysis is an inventory management technique that classifies items into three categories: A, B, and C, based on their annual value.
- A items: Your top sellers that account for 80% of your total revenue.
- B items: Your mid-tier sellers that account for 15% of your revenue.
- C items: Your lowest-tier items that account for 5% of your revenue.
You can optimize your inventory management by knowing which items fall into each ABC category to ensure they're always in stock and avoid lost sales.
» Understand better why you should use ABC analysis for your Shopify store.
Generating an ABC Analysis Report
Generating an ABC analysis report is easy as it's a built-in function in your Shopify dashboard. To generate your report:
- Log in to your Shopify admin
- Click "Reports"
- Look for the "ABC analysis by product" or "inventory analysis" option
The wording may vary depending on your theme or the apps you've integrated into your store. Once you've accessed your ABC analysis by product, it should look like this:
Configure the parameters and data sources in your ABC analysis report to generate meaningful insights. Use your historical product sales data, such as sales volume, revenue, and dates, as the main parameters and data sources.
For a thorough view, also incorporate your product costs, including goods, shipping, and any other related expenses. When reviewing the generated report, pay attention to timeframes and look at data over specific periods, such as the past year, quarter, or month, depending on your inventory turnover and sales patterns.
How to interpret your ABC analysis report
Let's look at some tips and strategies for dealing with the three types of categories in your ABC analysis report.
A items: High-value, low-quantity products
A items are high-value, low-quantity products. They're the stars of your inventory and essential to your business. To avoid stock-outs and boost sales, you must give A items the highest priority and replenish them regularly. You should also optimize prices, promotions, and marketing for these items. Additionally, you should find alternative suppliers as backups.
B items: Moderate-value, moderate-quantity products
B items are the majority of your inventory and contribute reliably to your revenue. They're essential for a balanced product assortment and a broad customer base.
Strategies for B items include improving inventory turnover, cross-selling, and bundling, adjusting prices, and strengthening supplier relationships.
C items: Low-value, high-quantity products
C items are typically not significant contributors to your bottom line, but they make up a large portion of your stock.
Use inventory management tools to predict demand and prevent overstocking, offering bulk discounts to move the products more effectively. Ensure efficient storage to minimize your storage costs, and negotiate with suppliers to get better pricing and terms.
Easily implement ABC analysis findings via the right Shopify app
Once you've identified your A and B items, you can use the Bestsellers reSort app to specify and schedule them as featured products to stay at the top of your collections. This app has a comprehensive set of advanced sorting rules to automatically organize and sort products in collections.
» Explore this comprehensive Bestsellers reSort review for an in-depth look at its features.
Taking Action Based on the Analysis
Make smart merchandising decisions based on your ABC analysis results. Adjust inventory levels, use thoughtful pricing strategies, and add or remove marketing focus based on the value of each item. For example, keep a low reorder point for A items, a moderate reorder point for B items, and a higher reorder point for C items. Use an inventory management tool like Bestsellers reSort to automatically sort your products based on your findings.
After you've embedded ABC analysis in your strategy, you'll have more power over your sales. Emphasize, promote, and generate revenue from your most profitable items, while keeping a healthy balance with your less profitable ones.
» Optimize your Shopify inventory forecasting
