SKU Rationalization

SKU rationalization is a structured review process where a seller or brand evaluates every product in its catalog and decides which SKUs to keep, consolidate, or discontinue — based on profitability, velocity, and strategic fit.

It is sometimes called "catalog pruning" or "assortment optimization."

Why SKU Proliferation Happens

Every seller experiences catalog bloat over time. A new color variant gets added for one major retailer's request. A size extension for a seasonal promotion. A bundle that made sense for a single campaign. Over three to five years, a catalog of 200 core SKUs can become 800 active records with widely varying performance.

The Cost of Too Many SKUs

• Inventory capital spread thin — reorder quantities split across too many variants mean none have adequate safety stock
• FBA storage fees — slow-moving SKUs accumulate monthly and long-term storage charges
• Operational complexity — more SKUs mean more listings to maintain, more POs to manage, more listing suppression risk
• Management attention dilution — teams optimize the top 20 SKUs well and neglect the rest
• IPI score drag — high stranded or excess inventory from slow SKUs lowers your Inventory Performance Index

How to Rationalize the Catalog

Step 1 — Data pull: Export last 12 months of sales, returns, ad spend, storage fees, and COGS by SKU.

Step 2 — Profitability score: Calculate contribution margin per SKU (revenue − COGS − fulfillment − storage − ad cost). Rank them.

Step 3 — Velocity tier: Segment SKUs into A (top 20% of sales), B (next 30%), C (remaining 50%).

Step 4 — Decision matrix:

Step 5 — Transition plan: For discontinued SKUs — liquidate FBA stock, cancel open POs, archive listings cleanly.

How Often to Rationalize

Annual rationalization is a minimum. High-growth sellers review catalogs quarterly, especially before major buying seasons where poor-performing SKUs would otherwise consume capital and warehouse space needed for winners.