The Best Solution For Shopify ABC Analyses by Product
If you're performing inventory forecasting for your Shopify store, running an ABC analysis by product may seem like a good place to start. But it’s only that; a start. It will provide you with knowledge of how exactly each product in your inventory contributes to your store’s revenue, and which products are of the highest priority to your store, but that’s all.
This information is certainly important, and we’ll tell you how to calculate it, but if you’re looking to prevent stocking out and overstocking on products, and for help with your resource allocation then you’ll need to take the information from your ABC analysis a step further.
This is one of the many inventory forecasting issues we built our Shopify app Monocle to solve.
If you’ve manually pulled all of your order history and ran a proper ABC Analysis you may have noticed the following:
- An ABC analysis is simply not a forecast. It only shows you the historical performance of your products, but is not a prediction of what you’ll need for future sales.
-An ABC analysis doesn’t take seasonality into account. It only shows you how much of each product you sold over a certain period of time. So, an ABC analysis will not tell you which products were your biggest sellers in your store’s busiest season.
- An ABC analysis won’t provide you with reorder points and reorder quantities at all. Simply put, an ABC analysis can’t tell you what to order and when, and it won’t alert you when your running low on crucial stock which is probably some of the information you we’re hoping to get from it in the first place.
- It can’t tell you key resource Allocation information about which products can be removed from your inventory completely.
The solution to this is running an ABC XYZ analysis after you’ve successfully ran your ABC analysis. If you’ve never ran either, don’t worry. We’ll show you how to properly run an ABC analysis here, introduce you to the ABC XYZ analysis, and show you a completely automated solution if you’d simply like to know exactly what to order in your inventory and when without running any manual calculations on your end.
What is an ABC Analysis In Shopify?
If you’re unfamiliar with an ABC analysis, the purpose is simple; running a Shopify ABC analysis by product helps store owners prioritize their inventory management efforts. It will break a store's products down into A, B & C products. When an ABC analysis is ran properly, it should look like this:
Class A: These are the top 20% or so of products that contribute to around 80% of the revenue of your store.
Class B: These are the 30% or so of products behind class A that contribute to about 15% of the revenue of your store.
Class C: These are the bottom 50% or so of products which account for around just 5% of your store’s revenue.
How to Run an ABC Analysis
Running an ABC analysis by product for your Shopify store involves several steps:
Step 1:
Collect Data: Gather sales data for each product. If you’re collecting your data manually your Excel, or Google Sheets spreadsheet should look like this:
Step 2:
Calculate Value: Determine the annual consumption value for each item.
Use column D to calculate the revenue with this formula, and drag this formula down all rows in column D:
= B2 * C2
Sum up your total revenue below the revenue column with this formula.
=SUM(D2:Dx)
In Column E, calculate the percentage contribution of each product to total revenue. Enter this formula into cell E2:
= D2 / $D$total
Step 3:
Sort Products: Rank products based on their consumption value.
Sort your products based on their total revenue contribution (Column D) in descending order.
- Highlight the whole table.
- Click the Data tab in Excel.
- Click Sort & sort by Revenue in Descending Order.
Step 4:
Determine Your A, B & C Products: Categorize each product into A, B, or C based on what percentage they contribute to your store’s total revenue.
An Automated Shopify ABC Analysis
If you’re inventory is small enough, and you the have the time in your operations to run these calculations manually, you can probably handle running an ABC analysis in Excel or Google Sheets. Unfortunately, with a 20+ SKU inventory, doing any of the above manually is time consuming and prone to errors, but each step of a product by product ABC analysis can be performed by Monocle error free.
If you own a Shopify store and this sounds like it could help your operations then you can try a 14 day free trial of Monocle in the Shopify app store today. All new users get an on boarding call with our founder.
Using your entire order history, Monocle’s ABC XYZ analysis provides you all the data of a SKU by SKU Shopify ABC analysis by product, but is completely automated, and continually calculated by Monocle with minimal effort on the end of our users. Your A, B & C products are broken down visually, and by their important subcategories. Monocle integrates with your Shopify store in just minutes, and our free 30 minute onboarding call with our founder ensures our users have maximum success with their data.
The Benefits of an ABC Analysis For Your Shopify Store
Despite it’s limitations, conducting a proper ABC analysis of inventory is crucial for Shopify store owners. It’s data provides you with several benefits that directly impact your store’s performance and bottom line. They are:
Inventory Control: By knowing which products are your top performers (A grade), you know which products you can never let stockout. This prevents lost sales and enhances customer satisfaction.
Customer Satisfaction: Always having your most popular products available creates happy repeat customers for your store.
Pricing Decisions: Knowing how each product effects your bottom line allows you to make the most profitable pricing decisions.
Sell-Through Rate: Knowing what your highest value products are allows you to give them the focus they need, and prevents having too much of a less important item on hand.
Storage Cost: Avoiding overstocking on lower value items allows you save on storage costs.
Resource Allocation: Knowing your most important products will allow you to know exactly where to focus your stores marketing and sales efforts. You’ll also have the capability to learn which of your products are not moving, yet contributing heavily to your storage costs, and make adjustments accordingly. We’ve seen our analyses reveal to users that they are wasting tens of thousands of dollars on inventory that just won’t move.
All These Benefits From An Automated Solution
Monocle’s AI powered analytics allow Shopify store owners to enjoy all these benefits in their businesses seamlessly. Monocle categorizes each A, B & C product accurately to make sure stockouts, and overstocks are not something your store will have to face.
A & B Grade Product Strategies For Shopify
For A grade products, maintaining strong relationships with suppliers is crucial. Consider multiple suppliers to ensure a steady supply and always have reorder points set up to avoid stockouts. For B grade products, you need to make sure you have enough stock to meet demand without overstocking. This balance is essential to manage costs and meet customer demand effectively.
Automated Reorder Points With Monocle
Setting up your reorder points manually is cumbersome, and can get complicated.
To do it you have to:
- Calculate how much of each product you sell every day.
- Figure out how long it takes to get each product from your supplier.
- Know how much extra stock you need to order just in case.
Depending on the size of your inventory, calculating all this manually can take 10-20 hours a month, and will require updates when a product starts selling faster.
Monocle does all of this for you, and simply alerts you when you need to reorder a product in your inventory. Monocle lets users know when to reorder each product and SKU by the exact unit and day with automated reorder points to ensure your store always has the A & B grade inventory you need. Our predictive analytics can keep your inventory forecasted even in the face of the most challenging demand fluctuations.
Purchase Order Automation With Monocle
Monocle’s Purchase Order Automation feature can help keep your supplier relationship smooth. You can generate an easy to understand, accurate, and on time purchase order, and send it right to your supplier directly from Monocle. Purchase orders created in Monocle arrive in your suppliers email inbox in the form of a PDF, eliminating confusion and workload on their part.
C Grade Strategies For Your Shopify Store
For C grade products, consider bundling them with A or B grade items to increase sales. Adjusting pricing or discontinuing underperforming products can also be beneficial. Increasing visibility for C grade products through promotions can help move inventory that would otherwise take up valuable storage space.
Unlock Potential C Grade Bundling Opportunities
With Monocle you can easily see which products are frequently purchased together. You may have a C grade product in your inventory that frequently gets purchased with an A grade product, and this could be an excellent bundling opportunity for your store. Opportunities like this are hard to see with a manual ABC analysis but simple with Monocle.
Your C Grade Resource Allocation Solution
The best strategy for some C grade products is to simply discontinue them. But this isn’t the best course of action to take with all of your C grade products. Unfortunately you can’t differentiate which C grade products should stay or go from a manual ABC analysis alone, but with Monocle you can.
This is because Monocle shows you which of your C grade products contribute little revenue, and costly to manage and plan for due to their unpredictable demand, making them potential candidates for discontinuation. This is broken down visually in an easy to understand format that you simply won’t find with a standard ABC analysis.
An ABC Analysis Can’t Forecast Seasonality, But An ABC XYZ Analysis Can
A standard ABC analysis falls short by not accounting for seasonality. This makes it not fully sufficient for inventory forecasting. This reason is, as previously stated, an ABC analysis can only tell you how much each product in your store sells overall, but it cannot tell you when exactly your sales change. So if you sell bathing suits, an ABC analysis cannot tell you the amount of stock your Shopify store will need for the summer season. An ABC analysis can put you at risk of running out of your most important products when people are most likely to buy them. This is where an ABC XYZ analysis comes in.
An ABC XYZ analysis analyzes your entire order history like and ABC analysis and then categorizes products based on the following:
X items: Products in your store that sell steadily all year.
Y items: Products with higher sales during certain seasons.
Z items: Products that sell in random patterns.
Although an ABC XYZ analysis can be run manually, it’s not something we recommend you do for your Shopify store.
Here’s why:
- It can take anywhere from 1 to 3 days per month; time which you could be putting into your business.
- Getting the right data requires some fairly difficult mathematical formulas. You need to calculate when each product of your inventory sold among other data points. If you’re not experienced with making these calculations it’s likely your data won’t be correct.
- It’s hard to update manually. You’ll have to run the analysis again each time you want to calculate for new data.
An Automated ABC XYZ Analysis
Monocle’s completely automated ABC XYZ analysis overcomes these limitations. It integrates various data points to provides a dynamic and accurate ABC XYZ analysis ensuring you are prepared for your store’s busiest sales cycles, and regular high impact marketing activities. This means that if your store sells bathing suits Monocle can tell you how many to order for the summer, and if you know that sales usually spike after a certain social media marketing campaign Monocle can tell you how much of each product to order to be ready for the impact of that campaign.
Our system continuously analyzes your entire order history, adjusting our ABC XYZ analysis accordingly. This means that your inventory forecasts are always optimized. By accounting for these variables, Monocle ensures that you never face a stockout or overstock scenarios, keeping your business running smoothly and efficiently.
Level Up Your ABC Analysis In Shopify
Monocle is the best way to run a Shopify ABC analysis, and ABC XYZ analysis by product and SKU. It offers a comprehensive inventory forecasting solution, tailored for integration with the Shopify platform. By accurately forecasting each product in your A, B, and C grade inventory and accounting for factors a standard ABC analysis cannot, Monocle ensures you maintain optimal stock levels and maximize your store's efficiency.
Ready to transform your inventory management? Try a 14-day free trial and onboarding call with our founder today and experience the most accurate and efficient ABC XYZ analysis for your Shopify store.
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