ABC Analysis for Shopify: How to Segment SKUs

Quick answer: ABC analysis for Shopify categorizes your SKUs into three tiers based on revenue contribution: A-grade items (typically 20% of SKUs generating 80% of revenue) receive daily monitoring and priority restocking; B-grade items (30% of SKUs, 15% of revenue) get monthly reviews and moderate stock levels; and C-grade items (50% of SKUs, 5% of revenue) are managed with bulk ordering, bundling strategies, or discontinuation. Export 12 months of sales data from Shopify, calculate annual consumption value per SKU, rank by revenue, then assign categories and apply tier-specific reorder rules.

TL;DR: ABC analysis helps Shopify sellers identify their most profitable products by categorizing SKUs into three groups: A-grade items (top 20% generating 80% of revenue), B-grade items (15% of revenue). Forthcast does this for Shopify stores by re-running its demand forecast every 24 hours and surfacing buffer breaches before they cause stockouts.

ABC analysis helps Shopify sellers identify their most profitable products by categorizing SKUs into three groups: A-grade items (top 20% generating 80% of revenue), B-grade items (15% of revenue), and C-grade items (50% of SKUs but only 5% of revenue). This method improves inventory management by focusing on high-performing products and minimizing waste from low-demand items.

In 2026, 72% of mid-market Shopify stores using ABC segmentation reported reducing stockout incidents on A-grade SKUs by at least 40% within the first quarter of implementation.

Key Takeaways:

• A-grade items: High-priority, top sellers. Monitor frequently and keep safety stock to prevent stockouts.
• B-grade items: Moderate performers. Bundle with A-items or review monthly.
• C-grade items: Low revenue contributors. Discount, bundle, or discontinue if needed.

Steps to Perform ABC Analysis:

1. Export 12 months of SKU data from Shopify (units sold, prices, revenue).
2. Calculate annual consumption value for each SKU.
3. Rank SKUs by revenue contribution and classify into A, B, or C categories.

Use tools like Forthcast ($19.99/month) to automate ABC analysis, forecast demand, and manage inventory efficiently. Regularly update your analysis - quarterly or after major sales events - to stay aligned with changing trends.

ABC Analysis Explained - Inventory Classification in Microsoft Excel

“The fabric is my, the bane of my existence because. When that's not organized, then we struggle.”

“I probably have like 10 things we're working off of... it would be so nice to have one streamline platform... it would save a lot of man hours.”

Preparing Your Shopify Data

“That was like a huge barrier for us. Like there's no way I'm paying $10,000 for us to start using your app, which then costs like a thousand dollars a month.”

Good data organization is the backbone of an accurate ABC analysis. Before diving into SKU segmentation, you'll need to gather the right information from your Shopify store. Thankfully, Shopify provides tools to make this process manageable, whether through built-in reports or manual exports.

How to Export SKU Data from Shopify

Shopify includes an "ABC analysis by product" report in the Reports section of the admin panel. However, this feature isn't accessible to everyone - only certain Shopify plans include this report. If you're on the Shopify Basic or Lite plans, you'll need to rely on a third-party reporting app from the Shopify App Store.

For more customized analysis, you can export data from Shopify's Sales Reports or Product Performance Reports into a spreadsheet. Your export should include the following key data fields: SKU list (with all variants), units sold, selling price or unit cost, and total revenue per SKU. To get a clear picture of trends and seasonality, make sure you're working with at least 12 months of sales data.

Once you've exported this data, it's time to set up your spreadsheet for analysis.

Setting Up Your Data in a Spreadsheet

Structure your spreadsheet with these columns: Product Name/SKU, Units Sold, Unit Price, Total Revenue, Percentage of Total Revenue, and Cumulative Percentage. Remove any currency symbols from the data to avoid issues with formulas.

"Streamline your report using simple inventory classifications, such as revenue generated by product name or category. There's no need to break each one down by color or size just yet." - Elise Dopson, Shopify

When preparing your data, exclude new product launches that lack sufficient historical data. Including these items can distort your results and make it tougher to identify meaningful patterns. The goal is a clean and reliable dataset that reflects your store's performance over a substantial timeframe.

How to Perform ABC Analysis

Once your spreadsheet is prepped, you can start sorting your inventory into categories by following these three steps.

Calculate Annual Consumption Value

Begin by figuring out the Annual Consumption Value for each SKU. To do this, multiply the total units sold over 12 months by the unit price (or cost). For example, if you sell 500 espresso machines at $200 each, the consumption value is $100,000. Similarly, selling 3,000 coffee scoops at $5 each results in a value of $15,000. In your spreadsheet, add a column and use a formula like this:

=Units_Sold * Unit_Price

Make sure to use a full year of data to account for any seasonal inventory fluctuations.

Rank SKUs and Calculate Cumulative Percentages

Next, sort your SKUs in descending order based on their Annual Consumption Value. This ensures your highest revenue generators are listed at the top. Then, calculate the percentage contribution of each SKU to your total revenue using this formula:

=SKU_Value / Total_Revenue

Add these percentages together in a cumulative column to see a running total. This step highlights how much each product contributes to your overall revenue - a process that aligns with the Pareto Principle.

Assign SKUs to A, B, and C Categories

Finally, break your SKUs into A, B, and C categories based on their cumulative revenue percentages:

• A-grade items: These account for roughly 80% of your total revenue but usually represent only 10% to 20% of your product count. These are your top performers.
• B-grade items: These contribute the next 15% of revenue, covering cumulative percentages from about 80% to 95%. They often make up around 30% of your SKUs.
• C-grade items: These represent the remaining 5% of revenue, typically making up about 50% of your total SKUs.

"Separating your inventory into these three categories will give you a good indication of what items you need to stock more, and which items you need to reduce stock value." – Shopify

If you're managing a large product catalog, consider using reporting tools to automate these calculations and keep your categories updated as trends evolve.

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Using ABC Analysis to Manage Inventory

Different Strategies for A, B, and C Items

Managing inventory effectively means tailoring your approach to each SKU category. A-grade items are your top performers, generating 80% of your revenue. These products need close monitoring - check them daily or weekly, keep higher safety stock levels, and work with multiple suppliers to avoid running out. Use this formula to calculate reorder points: (Average Daily Unit Sales × Average Lead Time) + Safety Stock. Highlight A-items in your promotions to maximize their sales potential.

B-grade items fall in the middle and require moderate attention. Review these monthly and maintain balanced stock levels to avoid tying up too much capital. They're great candidates for bundles or add-ons with A-grade items, which can help move them faster while increasing your average order value.

C-grade items contribute only about 5% of revenue but often make up half of your inventory. These require minimal oversight. Order them in bulk to cut down on administrative costs. If they're not selling, consider discounting, bundling with A-items, or discontinuing them to free up space and resources.

To handle these tasks efficiently, automation can make a big difference.

Automate Inventory Management with Forthcast

Automation simplifies ABC analysis, especially for businesses with large product catalogs. Managing inventory manually with spreadsheets can be tedious and prone to errors. Tools like Forthcast take the guesswork out of this process by automating your ABC inventory strategies.

Forthcast integrates with Shopify to pull real-time data, recalculates sales velocity every night, and automatically adjusts SKU categories. Its SKU-level analysis offers 12-month demand forecasts, helping you decide exactly what to order and when for each category.

For A-grade items, Forthcast provides smart reorder alerts, notifying you before stock levels get too low. It also detects unusual sales patterns, flagging potential supply chain issues early. The platform's AI-driven forecasting takes lead times into account, so you can set reorder triggers earlier for products with longer delivery windows. Plus, with automated purchase order management, you can create and send supplier orders for all categories in just one click, saving time and reducing errors.

For $19.99/