What Is ABC Analysis in Inventory Management (And How It Helps You Reorder Smarter)

Do you know that 20% of your products are likely generating nearly 80% of your revenue?

It’s a surprising truth that most eCommerce sellers overlook and it’s often the reason behind overstocked shelves, wasted cash and stockouts of your best-sellers.

The mistake many brands make is treating every SKU the same, pouring equal time, money, and attention into products that don’t contribute equally to the bottom line.

But what if you could instantly identify the products that truly drive your business and focus your resources where they matter most?

That’s exactly what ABC analysis helps you do.

It’s a simple yet powerful inventory strategy that segments your products by their impact on revenue helping you reorder smarter, free up cash and scale more profitably.

In this guide, we’ll break down how it works, why it’s so effective, and how inventory tools make it effortless to implement.

What Is ABC Analysis in Inventory Management?

ABC analysis is a method of classifying inventory based on how much each item contributes to your overall revenue or consumption value.

It’s built on the Pareto principle (the 80/20 rule), the idea that roughly 20% of your products generate 80% of your sales.

By grouping items into A, B, and C categories, you gain visibility into what truly drives your business. It’s a simple but powerful way to decide where to focus your attention, money, and stockroom space.

• A items: High-value, high-impact products. They make up a small percentage of SKUs but a large percentage of revenue.
• B items: Mid-range performers that contribute moderately to sales.
• C items: Low-value products that sell infrequently or generate minimal revenue.

Why ABC Analysis Matters for Modern eCommerce Stores

In fast-moving eCommerce, inventory decisions directly shape your profit margin. Without a prioritization system, you risk:

• Tying up capital in products that don’t sell.
• Missing out on sales from your best-sellers.
• Spending time managing SKUs that barely matter.

ABC analysis eliminates that guesswork by highlighting which products deserve close monitoring and which ones can be managed with a lighter touch.

It’s particularly valuable for Shopify brands scaling their catalog because as your SKU count grows, the cost of treating every product equally skyrockets.

How ABC Analysis Works: Understanding A, B, and C Categories

At its core, ABC analysis is about separating your inventory into three distinct groups, A, B, and C, based on how much each product contributes to your total sales or consumption value.

Here’s how most businesses classify their inventory:

Category A: The Top Performers (High Value, Low Volume)

• Share of SKUs: ~10–20%
• Contribution to Total Value: ~70–80%

These are your money-makers, the products that account for a small portion of your total SKUs but the largest share of revenue. They’re often your best-sellers, high-margin items, or essential components in your catalog.

Because they’re so impactful, they demand tight control and frequent monitoring. You’ll want to forecast demand accurately, reorder proactively, and maintain healthy safety stock levels. Even a small stockout here can have a major impact on revenue.

Examples:

• A best-selling phone case that consistently drives 30% of your monthly sales.
• A hero skincare product that customers reorder every month.

Best Practices for A Items:

• Reorder frequently and keep safety stock.
• Monitor sales trends closely.
• Build stronger supplier relationships for better pricing and lead times.

Category B: The Steady Movers (Moderate Value, Moderate Volume)

• Share of SKUs: ~20–30%
• Contribution to Total Value: ~15–25%

B items are your middle-tier performers, they don’t generate as much revenue as A products but still play a key role in your overall sales mix. These products require regular attention, but not as intensively as your A items.

You might reorder them monthly instead of weekly, or hold slightly more stock to reduce ordering costs without risking stockouts.

Examples:

• A mid-range product that sells consistently but not explosively.
• Variants of your best-sellers that have steady demand.

Best Practices for B Items:

• Monitor and reorder at regular intervals.
• Optimize stock levels based on historical sales patterns.
• Explore bundling with A products to increase turnover.

Category C: The Low-Impact Items (Low Value, High Volume)

• Share of SKUs: ~50–70%
• Contribution to Total Value: ~5–10%

C items make up the bulk of your catalog but contribute the least to your revenue. They’re often slow movers, niche products, or low-cost accessories. While they shouldn’t be ignored, they don’t need frequent reordering or tight inventory control.

Managing them efficiently is key: you might consolidate orders, increase reorder intervals, or even consider phasing them out if they consistently underperform.

Examples:

• Seasonal or impulse-purchase products.
• Low-cost add-ons that rarely sell on their own.

Best Practices for C Items:

• Reorder less frequently and in bulk to save on procurement costs.
• Automate replenishment if possible.
• Review performance regularly and consider discontinuing poor performers.

Key Benefits of Using ABC Analysis in Your Inventory Strategy

When done consistently, ABC analysis transforms how you plan, purchase, and manage stock. Here’s what you gain:

1. Smarter Reordering Decisions

Know exactly which items deserve fast replenishment and which can wait.

2. Better Cash Flow

By investing more in A-class products and less in C-class, you free up capital for growth.

3. Reduced Storage and Holding Costs

Less overstock on low-value items means more efficient use of warehouse space.

4. Improved Supplier Relationships

You can negotiate better terms on your A-class items, the ones you buy most often and in larger quantities.

5. Higher Service Levels and Fewer Stockouts

Focusing on your most impactful products helps you maintain ideal stock levels where they matter most.

Common Mistakes Businesses Make With ABC Analysis

ABC analysis is simple to implement, but many businesses make small errors that reduce its effectiveness. Here are the most common ones to avoid:

1. Not updating classifications regularly – Product demand changes over time. A slow-moving item today might become a top-seller next quarter. Revisit your ABC categories at least once every few months to keep them accurate.
2. Ignoring seasonality and trends – Some products spike in demand during certain seasons or promotions. If you don’t account for this, you might understock high-demand items or overstock when sales drop.
3. Focusing only on revenue – Ranking products purely on sales value can be misleading. A product with slightly lower sales but higher profit margin might deserve “A” status over a low-margin best-seller.
4. Overcomplicating the process – Using too many categories or detailed calculations often leads to confusion. Keep the classification simple so it’s easy to maintain and use.
5. Treating all categories the same way – The whole point of ABC analysis is to manage A, B, and C items differently. For example, A products need frequent monitoring and reordering, while C items can have longer reorder cycles.

How Inventory Software Can Automate ABC Analysis for You

Doing ABC analysis manually in spreadsheets might work when you’re managing a dozen products but as your catalog grows and sales spread across channels, it becomes time-consuming and error-prone.

That’s where inventory software like Sumtracker steps in and makes the entire process effortless.

Here’s how it helps:

1. Automatic Data Calculation
Sumtracker automatically pulls your sales and inventory data, calculates each product’s consumption value, and identifies how much it contributes to your revenue, no manual work required.

2. Real-Time ABC Classification
Instead of categorizing SKUs yourself, Sumtracker instantly classifies products into A, B, or C categories based on live data. As sales trends shift, these categories are updated automatically, ensuring your decisions are always based on the most current information.

3. Smart Reorder Recommendations
Sumtracker doesn’t just categorize, it also tells you what to do next. You’ll receive reorder suggestions based on the importance of each item. For example, A-class products trigger low-stock alerts earlier, while C-class items are reordered less frequently.

4. Demand-Aware Forecasting
The platform continuously learns from your sales patterns, factoring in trends and seasonality. This helps you plan purchasing more accurately and avoid costly stockouts or overstocking.

5. A Centralized View for Faster Decisions
All your data including categories, stock levels, reorder points, and trends is accessible in one dashboard. This makes it simple to see where your attention is needed and act quickly.

Conclusion

ABC analysis isn’t just a concept, it’s a powerful decision-making framework that helps you focus on what truly drives your business.

By giving your best-sellers the attention they deserve, optimizing how you manage mid-range products, and streamlining slow movers, you can free up cash, improve stock availability, and boost profitability, all without increasing workload.

And with Sumtracker, you don’t have to run complicated spreadsheets or manually classify products as you can automatically calculate, categorize, and update your ABC analysis in real time while also giving you smart reorder suggestions and actionable insights.

Try Sumtracker now (Free trial available).

FAQs

1. What is the main purpose of ABC analysis?

The goal of ABC analysis is to prioritize inventory based on its impact on your business. By categorizing products into A, B, and C groups, you focus your time, money, and attention on the SKUs that generate the most revenue and profit.

2. How often should I update my ABC analysis?

It’s best to review and update your ABC categories every quarter or whenever you notice major changes in demand, seasonality, or product performance. Regular updates ensure your decisions are always based on accurate, current data.

3. Can small eCommerce stores benefit from ABC analysis?

Absolutely. Even if you manage a small catalog, ABC analysis helps you allocate resources more strategically. It becomes even more valuable as your store scales and you manage more SKUs.

4. Is revenue the only factor to consider when classifying products?

No. While sales value is the most common metric, you should also consider profit margins, demand patterns, and order frequency to get a more accurate picture of a product’s importance.

5. How does Sumtracker simplify ABC analysis?

Sumtracker automates the entire process 3from calculating consumption values to classifying products and generating reorder suggestions. It continuously updates categories based on real-time data, so you can make informed inventory decisions without manual effort.

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