ABC Analysis for Retail: Find the 20% of Stock Driving 80% of Your Sales

What Is ABC Analysis?

ABC analysis sorts your inventory into three groups based on how much revenue each item actually contributes - not how many units you sell, but how much money they bring in. It's built on the Pareto principle: in most retail businesses, roughly 80% of revenue comes from around 20% of items. ABC analysis tells you exactly which 20% that is, instead of leaving you to guess.

• A items: high revenue contribution, usually the top ~70–80% of cumulative sales - these can never run out
• B items: moderate contribution, the next ~15% - worth monitoring but not obsessing over
• C items: low individual contribution, often the largest number of SKUs but the smallest share of revenue

How to Calculate It Manually

1. List every item with its total revenue over a chosen period (a month or a quarter works well)
2. Rank items from highest to lowest revenue
3. Calculate the running cumulative percentage of total revenue as you move down the list
4. Mark items as A up to roughly 80% cumulative revenue, B for the next 15%, and C for the remainder

A Worked Example

Item Revenue % of total Cumulative % Class

Item 1 ₹1,20,000 40% 40% A

Item 2 ₹90,000 30% 70% A

Item 3 ₹30,000 10% 80% A

Item 4 ₹24,000 8%88%B

Item 5 ₹21,000 7% 95% B

Item 6 ₹15,000 5% 100% C

Here, just three items make up 80% of revenue - those are the ones that deserve first priority on shelf space and reorder budget.

What to Actually Do With A, B, and C Items

• A items: These can never go out of stock. Prioritize them in every reorder cycle, and keep a closer eye on their supplier lead times.
• B items: Review regularly, but they don't need daily attention.
• C items: Ask honestly whether some of these are worth continuing to stock at all, especially if they're also showing up on a dead stock report.

Why This Matters More Than a Simple Sales Report

A basic "top sellers" list only shows volume, which can be misleading - you might sell hundreds of a low-margin item and only a few of a high-margin one, and a pure unit-count view hides that. ABC analysis, run on revenue (or margin, if you want to go a step further), tells you where your business actually makes its money.

Automating It Going Forward

Running this by hand every month isn't realistic once you're carrying more than a few dozen SKUs. KOSH generates ABC analysis automatically as an 80/20 report, so you always know your A items without re-running the math yourself.