Shopify: What to Do With Your Best and Worst Performing Stock (ABC Analysis)
Inventory is critical but expensive.
In fact, it’s the biggest expense when it comes to running a business. 69% of merchants surveyed last year used funding from Shopify Capital to buy inventory.
But US retailers currently are sitting on about $1.50 in inventory for every dollar of sales they make. That’s a lot of tied-up expenses—and making too big an investment runs the risk of dead stock. Getting inventory management right really can make or break your business.
There are many tools and strategies you can use to analyze your best and worst performing inventory, letting you optimize your investment and increase profitability. One place to get started is with an ABC analysis by product.
What do you need to look into?
What is an ABC analysis?
* The importance of ABC analysis
* A grade strategies: what to do with your best performing inventory
* C grade strategies: what to do with your worst performing inventory
* Shortcomings of ABC analysis
* Optimize your inventory with Shopify
* What is an ABC analysis?
ABC analysis is a data analysis technique you can use to identify your best and worst performing inventory over a certain period of time. In other words, it gives you greater inventory control by helping you identify the products that make your business the most money and the ones that cost your business the most money. This also helps you boost profitability. (In Shopify, you’ll see your best and worst performing inventory for the past 28 days.)
ABC analysis is based on the Pareto principle, or the 80/20 rule, and classifies your inventory using three categories based on total revenue:
A grade. This is your best performing inventory, the money maker. A grade represents the specific inventory—in many cases only a small percent of the total—that accounts for 80% of your revenue. This is your most valuable inventory and should be protected and prioritized as much as possible.
B grade. B grade is your middle-of-the-road inventory and should be treated as such. This grade represents the specific inventory that accounts for the next 15% of your revenue. B grade can often fluctuate between an A grade and C grade.
C grade. And then you have your worst performing inventory. C grade represents the specific inventory that accounts for the remaining 5% of your revenue. You might also call this slow moving or dead stock. C grade brings very little value to your business and should be deprioritized as much as possible.
Read more here.