Is an ABC analysis based only on revenue good enough, or should it include profit margin?

A revenue-only ABC analysis is a reasonable starting point, but it can mislead. High-revenue products often carry thin margins, heavy discounts, or high returns, so they can look like top performers while contributing little profit. Pair a revenue ranking with a gross-profit-dollar ranking to see which products actually earn money.

What Shopify’s built-in ABC analysis measures

Shopify includes an ABC analysis report in its Analytics section. It groups product variants into three bands based on how much revenue each contributed over the last 28 days:

• A covers variants that contributed the top 80% of revenue.
• B covers the next 15%.
• C covers the bottom 5%.

The report is useful for one question: which variants move the most money through the store, and therefore need the tightest stock control so they never sell out. Available on all Shopify plans, including Basic.

Why revenue alone can be misleading

Revenue says nothing about cost. A product can land in the A grade because it sells in high volume at a thin margin, after heavy discounting, or with a high return rate. It looks like a winner on the ABC chart but contributes very little profit after costs.

The reverse is also common. A C-grade product with modest sales but a healthy margin may deserve more attention, not less. Ranking by revenue hides both cases.

Why margin percentage alone is also wrong

Swapping revenue for margin percentage creates the opposite problem. The product with the highest margin percentage is not always the most profitable in dollar terms. A 70% margin on a product that sells 10 units can produce less profit than a 25% margin on a product that sells 500.

For ABC purposes, the more useful profit metric is gross profit in dollars (net sales minus COGS), not margin percentage.

A better approach: two lenses together

Run the ABC classification twice, once by revenue and once by gross profit dollars, then compare the two grades per product. The combinations tell a clear story:

• Revenue A, Profit A: Core winners. Protect stock and keep them in supply.
• Revenue A, Profit C: Volume traps. Review pricing, discounting, supplier cost, and returns.
• Revenue C, Profit A: Hidden gems. Consider promoting or expanding.
• Revenue C, Profit C: Candidates to discontinue or clear out.

A simple rule of thumb: let revenue and units drive replenishment and safety stock, because they reflect demand. Let gross profit drive pricing, marketing spend, and range decisions, because it reflects value.

What Shopify cannot do here

Shopify’s native ABC report ranks by revenue only. There is no built-in option to switch it to a profit basis, and no built-in way to compare the two grades side by side. To get a profit-aware ABC view, product cost needs to be tracked in Shopify (the Cost per item field) and then combined with sales data in a separate report.

Where a reporting app fits in

A reporting app like Report Pundit uses the Cost per item field already stored on each product in Shopify to build a profit-based ranking alongside the revenue one. The ABC Analysis template covers the revenue view, and a Most Profitable Products report covers the profit view by combining sales with cost data, including fields such as COGS, gross profit, and profit margin percent. Custom calculations support formulas like gross profit as net sales minus COGS. Exporting both views to Google Sheets or Excel and matching them by SKU produces the matrix above.