What is SKU Rationalization?

SKU rationalization is the systematic process of evaluating every product in a business’s catalog to determine which SKUs contribute meaningfully to revenue and profitability and which ones create more cost than value. The goal is to optimize the product assortment by discontinuing slow-moving or unprofitable items, consolidating redundant variations, and focusing resources on the SKUs that drive the most business impact. SKU rationalization is not about having fewer products for the sake of simplicity—it’s about ensuring every SKU in the catalog earns its place.

Why It Matters

Catalog bloat is one of the most common and least visible drains on e-commerce profitability. Every SKU in the catalog carries costs—warehouse space for storage, labor for receiving and picking, capital tied up in inventory, content creation for product listings, and customer support for inquiries. When a significant portion of the catalog generates minimal revenue, these costs accumulate without corresponding returns. ABC analysis often reveals that 20% of SKUs generate 80% of revenue, meaning the remaining 80% of the catalog may be consuming disproportionate resources.

Beyond direct costs, excessive SKU counts create operational complexity. More SKUs mean more purchase orders to manage, more items to count during cycle counts, more listings to maintain across sales channels, and more potential for inventory errors. SKU rationalization simplifies operations, frees up warehouse space for better-performing products, and allows teams to focus their attention on the items that matter most to the business.

How It Works

SKU rationalization follows a structured analytical process:

• Data Collection: Gather comprehensive data on every SKU, including sales volume, revenue, gross margin, inventory turnover rate, carrying cost, return rate, and customer demand trends over multiple time periods. A single month’s data is insufficient—seasonal variations and product lifecycle stages must be considered.
• Performance Segmentation: Classify SKUs into tiers using frameworks like ABC analysis. A-items are top performers that must be maintained and potentially expanded. B-items are moderate performers worth retaining with monitoring. C-items are candidates for further evaluation—some may serve strategic purposes despite low volume, while others are pure drag on the business.
• Strategic Evaluation: Not every low-volume SKU should be eliminated. Some serve as entry points for new customers, complement high-performing products, fulfill contractual obligations with retail partners, or support brand positioning. The rationalization process must weigh financial performance against strategic value.
• Action Planning: For SKUs identified for removal, develop a plan for liquidation (clearance pricing, bundling with popular items), discontinuation timelines, and communication with affected channels and customers. For SKUs identified for consolidation, map the transition from multiple variations to streamlined options.

How Nventory Helps

Nventory gives you the data foundation needed for effective SKU rationalization. With real-time visibility into sales velocity, inventory turnover, carrying costs, and channel-level performance for every SKU, you can quickly identify which products are earning their place in your catalog and which are consuming resources without adequate returns. Nventory’s reporting tools help you segment your catalog, track performance trends over time, and make informed decisions about which SKUs to keep, consolidate, or discontinue—all without losing sight of cross-channel impacts.