What is ABC analysis in inventory management?

ABC analysis categorizes inventory into three groups based on value and sales velocity. A items are high-value (top 20% of SKUs, 80% of revenue), B items are moderate, and C items are low-value, high-quantity products.

How often should I update my ABC classification?

Review ABC classifications quarterly at minimum. Seasonal businesses should review monthly during peak periods. Products can shift categories as demand changes.

Can a product be in different ABC categories across channels?

Yes. A product might be an A-item on Amazon but a C-item on Shopify. Multi-channel sellers should run ABC analysis per channel and combined.

What percentage of SKUs should be in each category?

Typically: A items = 10-20% of SKUs (70-80% of revenue), B items = 20-30% of SKUs (15-25% of revenue), C items = 50-70% of SKUs (5-10% of revenue).

Should I stop selling C items?

Not necessarily. C items may be important for customer experience, bundling, or strategic reasons. But they need less forecasting attention and can carry higher stockout tolerance.

How does ABC analysis help with forecasting?

Focus your forecasting effort on A items where accuracy matters most. Accept more variance on C items. This prioritization improves overall inventory performance with less effort.

Inventory ABC Analysis: How to Prioritize Your SKUs | ReplenishRadar

What Is ABC Analysis?

ABC analysis ranks your inventory by importance so you know where to focus. The principle comes from the Pareto rule: roughly 20% of your products generate 80% of your revenue.

For Shopify and Amazon sellers, ABC analysis answers a critical question: Which SKUs deserve the most attention?

How to Categorize Your Inventory

A Items: Your Money Makers

A items are your top performers:

Top 10-20% of SKUs
Generate 70-80% of revenue
Need the tightest inventory control
Stockouts here hurt the most

Action: Forecast these weekly. Keep safety stock high. Monitor daily.

B Items: The Middle Ground

B items are moderate contributors:

Next 20-30% of SKUs
Generate 15-25% of revenue
Need regular monitoring
Balance cost vs. availability

Action: Forecast monthly. Moderate safety stock. Review weekly.

C Items: Long Tail Products

C items are your low-velocity products:

Remaining 50-70% of SKUs
Generate only 5-10% of revenue
Can tolerate occasional stockouts
Tied-up capital risk if overstocked

Action: Forecast quarterly. Minimal safety stock. Order in bulk when possible.

Step-by-Step ABC Analysis

Step 1: Gather Your Data

Export from Shopify or Amazon:

SKU identifier
Units sold (last 90 days)
Revenue generated
Current inventory value

Step 2: Calculate Annual Revenue per SKU

Annual Revenue = Units Sold × Selling Price

Sort SKUs from highest to lowest revenue.

Step 3: Calculate Cumulative Percentage

For each SKU, calculate:

Individual contribution %
Cumulative contribution %

Step 4: Assign Categories

Cumulative Revenue	Category
0-80%	A
80-95%	B
95-100%	C

Step 5: Apply Different Strategies

Category	Safety Stock	Review Frequency	Stockout Tolerance
A	2-4 weeks	Daily/Weekly	Zero
B	1-2 weeks	Weekly/Biweekly	Low
C	1 week or less	Monthly	Acceptable

ABC Analysis for Multi-Channel Sellers

Selling on both Shopify and Amazon? Run ABC analysis:

Per channel - Different channels have different bestsellers
Combined - Overall business prioritization
By location - FBA vs. warehouse performance

A product might be an A-item on Amazon but a C-item on Shopify due to different customer bases.

Common ABC Analysis Mistakes

Mistake 1: Using Units Instead of Revenue

A high-volume, low-margin product might sell 1,000 units but generate less profit than 50 units of a premium item. Always rank by revenue or gross margin.

Mistake 2: Never Updating Classifications

Products shift categories. Last year's bestseller might be this year's slow mover. Review quarterly at minimum.

Mistake 3: Ignoring New Products

New SKUs have no history. Place them in a temporary "N" category with higher attention until you have 90 days of data.

Mistake 4: Treating All C Items the Same

Some C items are strategic—accessories that drive A-item sales, or SKUs needed for bundles. Flag these separately.

ABC Analysis + Demand Forecasting

ABC analysis tells you where to focus. Demand forecasting tells you how much to order. Combine them:

Category	Forecasting Approach
A	Sophisticated models, weekly updates, tight monitoring
B	Standard models, monthly updates
C	Simple averages, quarterly review

This prioritization lets you achieve 90% accuracy where it matters most with less overall effort.

Automating ABC Analysis

Manual ABC analysis in spreadsheets works but gets tedious with:

Hundreds of SKUs
Multiple channels
Frequent updates needed

ReplenishRadar automatically:

Calculates ABC classifications
Updates rankings as sales change
Applies different forecasting rigor by category
Alerts you when products shift categories

See your ABC breakdown instantly. Start a free trial and connect your Shopify or Amazon store.

Related Reading:

Inventory ABC Analysis: How to Prioritize Your SKUs