SKU rationalization: which low-volume products are worth keeping
The short answer
SKU (stock keeping unit) rationalization means cutting products that cost more to carry than they earn. Before you cut a low-volume line, check who buys it and what else they buy. Keep lines bought by your high-value customers or sold alongside strong products, and cut the ones that bring neither margin nor a good customer.
Weighing long tail products by basket margin
Why it matters
Low-volume lines tie up stock, shelf space and management time. Cutting by volume alone can remove products your best customers rely on. Checking who buys a line and what they buy with it shows which ones to keep.
The question to ask
Copy this into Lexi as written.
How to work it out
1. Isolate your low-volume lines. List products in the bottom share of units sold over 12 months, and note their margin and stock held.
2. Check who buys them. Find the customers behind each line and flag lines bought by your highest-value or most loyal customers.
3. Check what they buy alongside. Total the margin on the other items in the same orders to get each line's basket-adjusted margin.
What the answer looks like
Illustrative output on sample data
Illustrative figures from a pet specialty retailer reviewing three low-volume lines over a year.
- Grain-free rabbit food: $1,900 line margin, plus $14,600 margin on other items in the same orders. Basket-adjusted margin = $16,500.
- Novelty cat toys: $2,300 line margin, plus $3,100 alongside. Basket-adjusted margin = $5,400.
- Premium aquarium filters: $2,800 line margin, plus $1,200 alongside. Basket-adjusted margin = $4,000.
Reading the result
On volume alone the rabbit food looks like the first cut. Its buyers are mostly repeat, high-value customers who shop monthly, and 70% of their orders include it. Cutting it risks sending them to a competitor for the whole basket. The aquarium filters earn the least once baskets are counted and are bought by occasional shoppers, so they are the stronger candidate to cut or clear.
Lexi can show the customers behind each line and what else sits in their orders.
Frequently asked questions
What does SKU rationalization mean?
It is the process of reviewing your product range and removing lines that cost more to hold, manage and sell than they return. The aim is a tighter range that frees cash and shelf space without losing the customers who matter.
How many SKUs should I cut?
There is no fixed number. Cut where a line has weak margin, no loyal buyers and no basket lift. Start with the lowest scoring lines, measure the effect on customers and revenue, then repeat.
Why check customers before cutting a line?
Sales volume hides who the buyers are. A low-volume line can be the reason a high-value customer shops with you. Checking buyers first protects the products your best customers rely on.