SKU analysis is the process of evaluating how effective your product assortment is received by your customer base. Most entrepreneurs and business owners get tunnel visioned on increasing revenue and profits. But even if you do hit or surpass your revenue growth goals, not paying attention to the productivity of your SKUs can be costly. It can lead to cash flow mismanagement, high shipping and service expenses, and overstocking of inventory. Here are 5 tips on how to improve this often forgotten but key metric of your business.
Answer Key Questions
When you are trying to optimize your SKU productivity, you need to boil it down to fundamentals. For every SKU, figure out critical information, such as how high or low the demand is for a product, how often you need to restock, how long it takes to sell the inventory, how much physical space a product takes and if the product earns that space through sales to justify the cost, and how much it costs to purchase and store the product. Know the answers to these questions, so you can anticipate when you need to re-order, where to distribute your resources, and where to place your product for optimal sales.
Create High-Quality Product Content
Product detail is everything when advertising online. Since customers can’t really hold the product, see or feel its texture, or test out any of its attachments or accessories, the product details are all that’s available for them to make the final decision of whether to buy or not. If your product description is unclear, incomplete, or misleading, it’ll affect how it is perceived by your target audience and, ultimately, impact your sales. Be as descriptive as possible, add professional images and tutorial videos, and format the tags and paragraphs appropriately for better readability.
Expand Your Product Category Carefully
Being ambitious is a good quality for an entrepreneur or business owner. That said, it can be harmful to your business to expand your category assortment too quickly without a solid footing on your core product category first. Stick to the products that you already know customers are buying before you sink any money into a new category. Once you see traction in your current offerings, you can then gradually explore new products that you can upsell to your current customer base. For instance, if you have a dog harness brand that is starting to pick up sales and revenue, you can then start to add leashes, collars, and other accessories that your customer base might need and want when they visit your online or brick-and-mortar store.
Let Your New Products Shine
New products will naturally take more time to sell than products you’ve already been selling since you started the brand. Boost these new SKUs by highlighting them on your website or positioning them in high-foot-traffic areas around your brick-and-mortar store. Another way to get attention for your new products is to mention them in the email newsletters that you send out to your subscribers. You might see this technique of marketing when you shop on Amazon’s website. Their “Customers who bought this product also bought” section highlights other products that are somehow related to the one you just bought.
Factor in Seasonality
When expanding your SKUs, consider how the season affects your consumer’s buying decisions. Depending on what product/service you offer, you may find that certain times of the year are especially profitable for your brand while other months are flat. When thinking about expanding your SKUs, consider a complementary product that your customers will need during that time of the year. For instance, if you are selling garden furniture for the summer, hammocks or barbecue grills may be a good SKU to introduce to your existing product assortment.
Without monitoring the productivity of your SKUs, it’s difficult to find which poorly performing products are bringing your revenues down. By paying more attention to the productivity of your SKUs, you can make more informed decisions when deciding which product/s to invest more of your time and money in and what to do with underperforming ones. Note that productivity monitoring and analysis of products is very technical. You’ll want to bring in an analyst to help you analyze and monitor the related data points.
