ABC Analysis
An inventory categorization method that ranks products by sales volume or revenue contribution — A items are top sellers, B items are moderate, C items are slow movers.
ABC Analysis is an inventory categorization method that ranks products by sales volume or revenue contribution, classifying them into three tiers: A items are top sellers that generate the most revenue, B items are moderate performers, and C items are slow movers with minimal sales impact. This technique applies the Pareto Principle (80/20 rule), where typically 20% of products (A items) account for 80% of revenue, while the remaining 80% of products contribute only 20% of sales. By segmenting inventory this way, businesses can allocate resources, attention, and capital more strategically across their product catalog.
Why it matters for e-commerce brands
For Shopify and DTC merchants operating with limited warehouse space and working capital, ABC Analysis helps prioritize which products deserve the most attention and investment. A items should be closely monitored for stockouts, reordered frequently, and potentially stored in premium warehouse locations for faster fulfillment, while C items may be ordered less frequently or even considered for discontinuation. This approach prevents tying up cash in slow-moving inventory while ensuring best-sellers remain in stock to capture maximum revenue.
Example
A Shopify apparel brand analyzes its 200-product catalog and discovers that 40 items (20%) generate $320,000 of its $400,000 annual revenue—these become A items requiring weekly inventory reviews and safety stock buffers. Another 60 products (30%) contribute $60,000 in revenue and are classified as B items with bi-weekly monitoring. The remaining 100 products (50%) account for just $20,000 in sales and are designated C items, which the brand decides to reorder only when inventory depletes completely or discontinue if they haven't sold in 90 days. This classification allows the brand to focus its limited capital on keeping A items in stock while reducing warehouse costs associated with slow-moving C items.
Related terms
- Inventory turnover ratio
- Economic Order Quantity (EOQ)
- Safety stock
- SKU rationalization
- Pareto Principle
Put ABC Analysis knowledge into practice
Forthsuite's tools are built around exactly these concepts — giving Shopify merchants the data and automation to manage their supply chain with confidence.