Twelve Percent of His Products Earned Seventy Percent of His Money

Every shop treats its products as roughly equal. They are not, and the ratio is more extreme than anyone expects. Knowing which is which changes what you stock, count and chase.

Ramesh carried 1,340 products in his Salem shop. When his daughter ranked them by the gross profit each had produced over twelve months, 160 of them — under 12% — accounted for just over 70% of what the shop earned.

At the other end, 480 products had produced less than ₹200 of gross profit each across the entire year. Together they occupied about a third of his shelf space and roughly ₹2.1 lakh of his money.

Ranking by Contribution, Not by Sales

The common mistake is to rank by units sold or by revenue. Neither is the right measure, because a high-turnover product at 4% margin can contribute less than a slow one at 30%.

Rank by gross profit contributed: units sold × margin per unit, over a year so that seasonality does not distort it. Then split the list into three groups.

• A — the top lines producing roughly 70-80% of gross profit. Usually 10-20% of your range
• B — the middle, producing most of the remainder. Usually 25-35%
• C — the long tail, producing very little individually. Usually half your range or more

The exact cut-offs do not matter. What matters is that you stop treating a product that earns ₹80,000 a year and one that earns ₹140 a year as two entries on the same list, deserving the same attention.

What Changes for Each Group

The whole point of the split is that it produces different behaviour, not a report.

• A lines: never out of stock, counted monthly, best shelf positions, prices watched against competitors, supplier relationship actively managed
• B lines: normal reorder points, counted quarterly, reviewed twice a year
• C lines: minimum quantities or order-on-demand, counted annually, and each one asked a hard question once a year

A stockout in an A line is an emergency. A stockout in a C line is frequently the correct outcome. Most shops respond to both with the same mild concern, which is how the important ones run out.

I was giving the same attention to a product that earned me ₹140 a year as to one that earned ₹80,000.

The C Group Is Not Simply Deletable

This is where rationalisation goes wrong. Some low-contributing lines are doing a job that does not appear in their own numbers.

• Traffic builders — a specific brand of something ordinary that brings a household in, who then buy fifteen other things
• Basket completers — the item whose absence sends a customer to a shop that has everything
• Obligation lines — the thing three regulars need, which you stock because they are regulars
• New lines that have not had time to establish themselves

Ramesh nearly dropped a shaving cream brand with thirty sales a year, then noticed the same eleven households bought it and that those households were among his largest monthly spenders. He kept it, at a minimum quantity.

The honest test is: if this vanished tomorrow, would the customer buy an alternative from me, or would they go elsewhere and do the rest of their shopping there? The first is a deletion. The second is not.

Move C lines to a single low-priority shelf section for a quarter rather than removing them. What nobody looks for in three months can go, and you will have learned which of them people actually ask for — which a report cannot tell you.

What the Space Was Worth

Ramesh removed 210 lines over two quarters, mostly duplicated variants and single-customer items that customer had stopped buying. He recovered about ₹1.3 lakh of capital and roughly a quarter of his shelf space.

He gave the space to his A lines — deeper facings, so the fast movers stopped running out mid-week — and to two new categories. Turnover rose 9% the following year on a smaller range.

Mapis ranks products by gross profit contributed over any period and flags lines with no movement, so the A, B and C groups are a view of your own shop rather than an exercise on paper.

Frequently asked questions

What is ABC analysis in retail inventory?

Ranking products by the gross profit each contributes over a year, then splitting them into three groups: A lines producing roughly 70-80% of profit from 10-20% of the range, B lines producing most of the remainder, and a long C tail contributing very little individually. Each group then gets different stocking, counting and reordering treatment.

Should I rank products by sales or by profit?

By gross profit contributed — units sold multiplied by margin per unit — over a full year so seasonality does not distort it. Ranking by revenue or units misleads, because a high-turnover product at 4% margin can contribute less than a slower one at 30%.

Should I remove slow-moving products from my shop?

Not automatically. Some low-contributing lines are traffic builders or basket completers whose absence sends a customer elsewhere for their whole shop. The test is whether the customer would accept an alternative from you or go to another shop. Move candidates to one low-priority section for a quarter first, and remove what nobody asks for.

What should I do with the shelf space I recover?

Give most of it to A lines as deeper facings, which stops your best earners running out mid-week — the most expensive stockout a shop has. One shop that removed 210 lines recovered ₹1.3 lakh of capital and a quarter of its space, and grew turnover 9% the following year on a smaller range.