You have many SKUs.
You want to know which are profitable.
You need SKU analysis.
You need to prune wisely.
SKU profitability. Margin analysis. Turnover data. Your pruning.
This guide shows you how.
SKU analysis. Profitability calculation. Decision framework. Your optimization.
Read this. Analyze SKUs. Prune wisely.
Key Takeaways
- Calculate profit margin per SKU—use Profit Margin Calculator to see profitability of each product
- Calculate turnover per SKU—use Inventory Turnover Calculator to see how quickly each SKU moves
- Combine margin and turnover—high margin and high turnover are keepers, low on both are candidates to drop
- Identify discount candidates—low margin but high turnover may benefit from pricing optimization
- Drop unprofitable SKUs—low margin and low turnover items should be eliminated
Table of Contents
Why SKU Analysis Matters
SKU analysis improves profitability.
What happens without analysis:
- Unprofitable SKUs are kept
- Cash is tied up in slow movers
- Profitability is diluted
- Resources are wasted
What happens with analysis:
- Unprofitable SKUs are identified
- Cash is freed from slow movers
- Profitability is optimized
- Resources are focused
The reality: SKU analysis enables optimization.
Calculate Margin Per SKU
Calculate profit margin for each SKU:
Use Profit Margin Calculator
Calculate it:
- Use our Profit Margin Calculator
- Enter revenue and costs for each SKU
- See profit margin percentage
Why it matters: Margin shows profitability.
Gather SKU Data
What data you need:
- Revenue per SKU
- Cost of goods sold per SKU
- Operating costs allocated
- Accurate cost tracking
Why it matters: Accurate data ensures accurate analysis.
Calculate for All SKUs
What to calculate:
- Margin for every SKU
- Compare margins across SKUs
- Identify high and low margin items
- Rank by profitability
Why it matters: Comprehensive calculation enables decisions.
Pro tip: Calculate margins. Use calculator, gather data, calculate for all SKUs. See our Profit Margin Calculator for easy calculation.
Calculate Turnover Per SKU
Calculate turnover for each SKU:
Use Inventory Turnover Calculator
Calculate it:
- Use our Inventory Turnover Calculator
- Enter cost of goods sold and inventory for each SKU
- See turnover ratio per SKU
Why it matters: Turnover shows movement speed.
Track SKU Movement
What to track:
- Sales velocity per SKU
- Inventory levels per SKU
- Days on hand per SKU
- Movement patterns
Why it matters: Tracking enables calculation.
Compare Turnover Rates
What to compare:
- Turnover across SKUs
- Fast vs. slow movers
- Seasonal variations
- Trends over time
Why it matters: Comparison identifies opportunities.
Pro tip: Calculate turnover. Use calculator, track movement, compare rates. See our Inventory Turnover Calculator for calculation.
Combine Metrics
Combine margin and turnover:
High Margin, High Turnover (Keep)
What this combination means:
- Highly profitable
- Fast moving
- Strong cash flow
- Keep and promote
Why it matters: These are your winners.
High Margin, Low Turnover (Review)
What this combination means:
- Profitable but slow
- May need promotion
- Consider discounting
- Review pricing strategy
Why it matters: These need attention.
Low Margin, High Turnover (Optimize)
What this combination means:
- Fast moving but low profit
- Volume play
- Consider price increase
- Optimize costs
Why it matters: These can be improved.
Low Margin, Low Turnover (Drop)
What this combination means:
- Unprofitable
- Slow moving
- Cash drain
- Drop immediately
Why it matters: These should be eliminated.
Pro tip: Combine metrics. High-high keep, high-low review, low-high optimize, low-low drop. See our inventory turnover basics guide for understanding.
Decision Framework
Use decision framework:
Step 1: Calculate All Metrics
What to calculate:
- Profit margin for each SKU
- Turnover for each SKU
- Days on hand for each SKU
- Total profitability
Why it matters: Calculation enables analysis.
Step 2: Categorize SKUs
What categories to use:
- Keep: High margin, high turnover
- Review: High margin, low turnover
- Optimize: Low margin, high turnover
- Drop: Low margin, low turnover
Why it matters: Categorization guides actions.
Step 3: Prioritize Actions
What to prioritize:
- Drop unprofitable SKUs first
- Optimize low-margin fast movers
- Review slow high-margin items
- Maintain winners
Why it matters: Prioritization focuses effort.
Pro tip: Use framework. Calculate metrics, categorize SKUs, prioritize actions. See our calculators for accurate analysis.
Action Planning
Plan actions for each category:
Keep Actions
What actions to take:
- Maintain inventory levels
- Promote these SKUs
- Expand if possible
- Monitor performance
Why it matters: Actions maintain winners.
Review Actions
What actions to take:
- Analyze why turnover is low
- Consider promotion
- Review pricing
- Test marketing
Why it matters: Actions improve performance.
Optimize Actions
What actions to take:
- Increase prices if possible
- Reduce costs
- Improve efficiency
- Maintain volume
Why it matters: Actions improve profitability.
Drop Actions
What actions to take:
- Stop ordering
- Clear existing inventory
- Discount to move
- Remove from catalog
Why it matters: Actions eliminate losers.
Pro tip: Plan actions. Keep, review, optimize, drop. See our inventory optimization guide for strategies.
Your Next Steps
Calculate metrics. Combine data. Prune SKUs.
This Week:
- Review this guide
- Calculate margin for all SKUs
- Calculate turnover for all SKUs
- Categorize each SKU
This Month:
- Take action on drop candidates
- Optimize low-margin fast movers
- Review slow high-margin items
- Monitor results
Going Forward:
- Analyze SKUs quarterly
- Track metrics regularly
- Adjust product mix
- Maintain optimization
Need help? Check out our Profit Margin Calculator for margin analysis, our Inventory Turnover Calculator for turnover analysis, and our inventory optimization guide for strategies.
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Sources & Additional Information
This guide provides general information about SKU profitability analysis. Your specific situation may require different considerations.
For profit margin calculation, see our Profit Margin Calculator.
For inventory turnover calculation, see our Inventory Turnover Calculator.
For inventory optimization, see our Inventory Optimization Guide.
Consult with professionals for advice specific to your situation.
