What Is ABC Analysis in Inventory?
Last updated
In this article
Talk to our experts- ABC analysis
- ABC analysis is an inventory management method that applies the 80/20 rule, or Pareto principle, to sort products into three grades by value, such as their share of revenue. A-grade products bring in most of the revenue, B-grade products a moderate share and C-grade products a small share, so a business can decide where to focus restocking, controls and cash.
Also called: ABC inventory analysis
How it works
ABC analysis ranks products by how much revenue each one contributes and splits them into three grades, an approach Shopify ties to the 80/20 rule, or Pareto principle: most of a system's output is caused by a small amount of the input.
Shopify's starting point is that you might find only a few of your products account for the majority of your profits. Other products are rarely ordered and can incur unnecessary warehousing, maintenance or advertising costs, which can tie up cash. Shopify's ABC inventory analysis uses these grades:
- A-grade: your top-selling products that account for around 80 percent of your revenue. Shopify calls them your most important products.
- B-grade: products that account for 15 percent of your revenue. They sometimes move into the A level or the C level.
- C-grade: products that account for 5 percent of your revenue.
In Shopify's version, the grade measures revenue, not margin: revenue is based on the retail price of items and excludes discounts, and the cost of the item doesn't factor into the grade.
How to use the grades
Shopify's guidance gives each grade its own treatment:
- A-grade: place better controls and protection on the inventory to avoid damage and theft, always have it on hand, consider a backup stock, and reorder well before you expect to run out.
- B-grade: keep it on hand and reorder so new stock arrives shortly before you run out. Watch which products drift toward A or C and treat them accordingly.
- C-grade: Shopify says these are often considered dead or slow-moving inventory, though they still account for some sales. Options include selling at a discount and removing the product after it sells out, ordering less often or on a just-in-time basis, or stopping orders unless the product serves another purpose.
Grading by value can also set how often stock is counted. In GAO-02-447G, a 2002 executive guide from the US General Accounting Office (GAO) on private-sector physical inventory counts, locations that segmented their inventory by dollar value counted higher dollar value items more frequently than lower value items. One location split items into four segments by dollar value multiplied by activity: the top 10 percent was counted four times a year, the next 20 percent three times, the next 30 percent twice and the remaining 40 percent once.
Example
A wholesaler sells 10 products and takes $100,000 in revenue over 28 days. Sorted from highest to lowest:
- Product 1: $45,000
- Product 2: $35,000. Running total $80,000, or 80 percent of revenue, so products 1 and 2 are A-grade.
- Product 3: $8,000
- Product 4: $7,000. Running total $95,000, so products 3 and 4 make up the next 15 percent and are B-grade.
- Products 5 to 10: $5,000 together, the last 5 percent, so all six are C-grade.
Two of 10 products, or 20 percent, bring in 80 percent of revenue. Those two get the backup stock and the earliest reorders. The six C-grade products are where to look first for stock that can be cleared.
On Shopify
Shopify's ABC product analysis report, under Analytics > Reports in the Shopify admin, gives each product variant a grade based on the percentage of your revenue that variant contributed over the last 28 days. As of October 28, 2026, Shopify's help center says the timeframe cannot be adjusted and updates daily. The report also shows each variant's ending quantity, the total value of its inventory at cost and at sale price.
Shopify says that if your store is on the Basic or Lite plan, you can download a reporting app with ABC analysis from the Shopify App Store.
Shopify says the report helps you see which products to prioritize when restocking and which you shouldn't invest in too heavily. Selling out of A-grade products can cost you sales, and overstocking C-grade products can mean spending more on warehousing than necessary.
How Uncap helps
The same principle applies to buyers. Uncap's guide to growing B2B ecommerce sales notes that not all B2B customers contribute equally to revenue: a minority of accounts drive the majority of it. Building explicit segmentation and tiered programs that recognize, reward and retain high-value accounts is a direct lever on revenue growth.
Sources
Frequently asked questions
What is the 80/20 rule in ABC analysis?
The 80/20 rule, or Pareto principle, is the observation that most of a system's output is caused by a small amount of the input. In ABC analysis, it means a few products bring in most of the revenue: Shopify's A-grade products are the top sellers that account for around 80 percent of revenue.
What are the different categories in ABC analysis?
ABC analysis uses three categories. In Shopify's version, A-grade products account for around 80 percent of revenue, B-grade products for 15 percent, and C-grade products for 5 percent. B-grade products sometimes move into the A or C level, so the grades are worth rechecking.
How is ABC analysis used in inventory management?
ABC analysis sets priorities. In Shopify's guidance, A-grade inventory gets tighter controls, backup stock and early reorders, while C-grade inventory is ordered less often or cleared. It can also set count frequency: in GAO's 2002 executive guide, locations that segmented inventory by dollar value counted higher value items more often.
