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FREE INVENTORY ANALYSIS TOOL

SKU Rationalization Tool

Evaluate SKU contribution, sales activity, inventory exposure, and strategic importance to identify products that may deserve closer assortment review.

  • Free to use
  • No sign-up required
  • Built for real inventory decisions

Calculator

Rationalization Screening Settings

Use transparent thresholds to create a review queue; no score is used.

Paste Spreadsheet Data Paste tab-separated or comma-separated rows

SKU [tab] Product Name [tab] Annual Revenue [tab] Gross Margin [tab] Current Stock [tab] Unit Cost [tab] Units Sold [tab] Days Since Last Sale [tab] Strategic / Required

Multi-SKU Workspace

Enter up to 20 SKUs. Mark strategic or required products to protect their classification while preserving their signals.

8 / 20 rows
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Results

Calculated
Rationalization Review Inventory$12,000

3 SKUs currently meet the Review Candidate or Exit Candidate criteria, representing approximately 42.9% of analyzed inventory value.

Total SKUs8Valid SKU rows analyzed
Annual Revenue$450,000Annual revenue entered across SKUs
Gross Profit Contribution$156,650Annual revenue × gross margin
Total Inventory Value$28,000Current stock × unit cost

Decision metrics

Review + Exit Candidates3 SKUsNon-strategic SKUs for deeper review
Review Inventory Value$12,000Review Candidate plus Exit Candidate
Review Inventory Share42.9%Of analyzed inventory value
Review Revenue Share4%Of annual revenue
Review Gross Profit Share1.95%Of gross-profit contribution
Exit Candidates2 SKUsThree or more review signals
Exit Candidate Inventory$7,000Current inventory exposure
Strategic / Protected1 SKURetained despite visible review signals
Decision Insight

3 Review or Exit Candidates hold approximately $12,000 of inventory value, representing about 42.9% of analyzed inventory, while contributing about 4% of annual revenue and 1.95% of gross profit. 2 SKUs meet three or more review signals and are flagged as Exit Candidates for deeper evaluation. SKU-H also meets multiple review signals but remains protected because it is marked Strategic / Required. These classifications are screening signals, not automatic assortment decisions.

SKU Rationalization Summary

Classification counts and current inventory value. Signals support review; they do not make automatic assortment decisions.

Keep3 SKUs$8,000 inventory
Monitor1 SKU$6,000 inventory
Review Candidate1 SKU$5,000 inventory
Exit Candidate2 SKUs$7,000 inventory
Strategic / Protected1 SKU$2,000 inventory

Contribution vs Inventory Exposure

Review + Exit Candidates. Compare their inventory exposure with their contribution; this is not an automatic removal recommendation.

Inventory Value Share42.86%
Revenue Share4%
Gross Profit Share1.95%

SKU Rationalization Analysis

Non-strategic candidates appear first. Review priority is based on signal count and inventory value.

1Priority 1SKU-FProduct F$5,0001.11%15%$7500.48%400 units$4,00014.29%00 units/day240 daysLow Revenue ContributionLow Gross Profit ContributionLow Sales VelocityLong InactivityNoExit Candidate
2Priority 2SKU-GProduct G$3,0000.67%10%$3000.19%300 units$3,00010.71%00 units/day300 daysLow Revenue ContributionLow Gross Profit ContributionLow Sales VelocityLong InactivityNoExit Candidate
3Priority 3SKU-EProduct E$10,0002.22%20%$2,0001.28%250 units$5,00017.86%50.0556 units/day160 daysLow Gross Profit ContributionLow Sales VelocityNoReview Candidate
4Priority 4SKU-DProduct D$30,0006.67%25%$7,5004.79%300 units$6,00021.43%50.0556 units/day90 daysLow Sales VelocityNoMonitor
5—SKU-BProduct B$120,00026.67%35%$42,00026.81%150 units$3,00010.71%1802 units/day5 daysNo signalsNoKeep
6—SKU-CProduct C$80,00017.78%30%$24,00015.32%200 units$3,00010.71%901 units/day20 daysNo signalsNoKeep
7—SKU-AProduct A$200,00044.44%40%$80,00051.07%100 units$2,0007.14%3003.3333 units/day2 daysNo signalsNoKeep
8—SKU-HProduct H$2,0000.44%5%$1000.06%50 units$2,0007.14%10.0111 units/day220 daysLow Revenue ContributionLow Gross Profit ContributionLow Sales VelocityLong InactivityYesStrategic / Protected

Key Takeaways

  • SKU rationalization should combine business contribution, sales activity, inventory exposure, and strategic importance rather than relying on one metric.
  • Low revenue or low sales velocity alone does not automatically mean a SKU should be discontinued.
  • Strategic, service, spare-part, or contractual SKUs may deserve protection even when financial contribution is low.
  • Use rationalization candidates as a review queue and validate demand, customer dependence, supplier terms, and product relationships before changing the assortment.

How It Works

Calculate revenue, gross-profit, sales-velocity, and inventory-value metrics for each SKU.

Measure each SKU's share of total revenue and gross-profit contribution.

Compare each SKU with the user-defined screening thresholds.

Count transparent Review Signals.

Classify SKUs as Keep, Monitor, Review Candidate, Exit Candidate, or Strategic / Protected.

Prioritize non-strategic candidates for deeper review.

Formula

Formula 1

Gross Profit ContributionAnnual Revenue × Gross Margin %

Formula 2

Inventory ValueCurrent Stock × Unit Cost

Formula 3

Revenue ShareSKU Annual Revenue ÷ Total Annual Revenue × 100

Formula 4

Gross Profit ShareSKU Gross Profit Contribution ÷ Total Gross Profit Contribution × 100

Formula 5

Sales VelocityRecent Units Sold ÷ Recent Sales Window

Formula 6

Inventory Value ShareSKU Inventory Value ÷ Total Inventory Value × 100

Formula 7

Review Inventory ShareInventory Value of Review + Exit Candidates ÷ Total Inventory Value × 100

Where:

  • Review Signals: transparent threshold checks, not a predictive AI score.
  • Gross Profit Share: available only when total gross-profit contribution is positive.
  • Strategic / Required: protects an SKU from a screening classification while retaining its visible signals.

Example Calculation

Let’s say:

  • SKU-E: $10,000 annual revenue, 20% gross margin, 5 recent units sold, and 160 days since last sale.
  • SKU-F: $5,000 annual revenue, 15% gross margin, no recent sales, and 240 days since last sale.
  • SKU-H: $2,000 annual revenue, four underlying signals, and Strategic / Required enabled.
SKU-E contributes 2.22% of revenue, so it is not low revenue at a 2% threshold. Its 1.28% gross-profit share and 0.0556 daily velocity create two signals, making it a Review Candidate. SKU-F has four signals and is an Exit Candidate, while SKU-H remains Strategic / Protected.

Exit Candidate means deeper review is warranted. It is not an automatic recommendation to discontinue, liquidate, or delete a SKU.

How to Use the Result

  • Start with Exit Candidates and Review Candidates, but investigate the business context before removing any SKU.
  • Confirm whether low-contribution SKUs serve strategic customers, spare-part requirements, bundles, contracts, or product ecosystems.
  • Review inventory exposure and replenishment settings before ordering more stock for weak candidates.
  • Compare rationalization results with ABC Analysis, Dead Stock, Inventory Aging, and Inventory Turnover.
  • Re-run the analysis when revenue, margins, demand, costs, or assortment strategy changes.

Limitations

  • SKU rationalization requires business judgment and cannot be determined from financial metrics alone.
  • Low-volume products may be strategically important for key customers, spare parts, bundles, service commitments, or assortment completeness.
  • Revenue share and gross-profit share depend on accurate annual data.
  • Recent sales velocity may not represent seasonal or future demand.
  • Current inventory value is a point-in-time exposure measure and is not the same as average inventory investment.
  • The screening thresholds are configurable decision rules, not universal industry standards.
  • Review Signal counts are intentionally transparent and should not be interpreted as predictive AI scores.
  • Exit Candidate means deeper review is warranted; it is not an automatic discontinuation recommendation.
  • Product overlap, substitution relationships, supplier agreements, customer concentration, and future product plans are not automatically modeled.
  • If total gross-profit contribution is zero or negative, gross-profit share signals are unavailable.

Frequently Asked Questions

What is SKU rationalization?

SKU rationalization is a structured review of contribution, activity, inventory exposure, and strategic role to identify products that deserve closer assortment review.

Why do companies rationalize SKUs?

They use it to manage assortment complexity, working capital, operational effort, and inventory exposure.

How do you decide which SKUs to discontinue?

Use screening results as a review queue, then assess customers, contracts, substitutes, supplier terms, strategic value, and future demand before any decision.

Does low revenue mean a SKU should be removed?

No. Low revenue is one signal, not an automatic removal recommendation.

What is the difference between SKU rationalization and ABC analysis?

ABC analysis classifies value contribution. SKU rationalization combines contribution with activity, inventory exposure, and strategic protection.

How does dead stock affect SKU rationalization?

Inactivity can create a review signal, while Dead Stock gives a separate, deeper inactivity view.

Should strategic or spare-part SKUs be excluded from rationalization?

Keep them visible and mark them Strategic / Required so their signals remain transparent while their protected role is respected.

What metrics should be used for SKU rationalization?

Revenue, gross profit, sales velocity, inventory value, inactivity, product relationships, and strategic importance are useful inputs.

How often should SKU rationalization be performed?

Review it on a cadence that fits the business and after meaningful assortment, demand, cost, or strategy changes.

What is SKU proliferation?

SKU proliferation is assortment growth that adds complexity faster than it adds useful customer or financial value.

How can too many SKUs affect inventory costs?

They can increase ordering, storage, handling, forecasting, and working-capital needs.

Can SKU rationalization improve working capital?

It can help focus review on inventory exposure with relatively low contribution, subject to business judgment.

What should I do with an Exit Candidate?

Perform deeper analysis before considering consolidation, replacement, markdowns, supplier returns, or discontinuation when appropriate.

Why is this tool using Review Signals instead of a single score?

The signals make the logic auditable and transparent instead of hiding decisions behind a black-box score.