By Shannon Belew, Joel Elad

With inventory for your online business, you’re never deciding whether to drop a product; rather, you’re deciding when to do so. Think about the last time you went grocery shopping.

Did you notice that most food items had sell by (expiration) dates stamped on their packaging? If a product’s sell by date has passed, the product shouldn’t be purchased. Instead, it’s eventually replaced on the store’s shelves by a fresher product.

Most products (food or otherwise) have expiration dates, or at least life spans, because at some point, for whatever the reason, products are no longer valid. In marketing terms, a product’s life span is referred to as its life cycle.

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Typically, a product’s life cycle is defined in four stages:

  • Start-up: As you introduce a product to the market, you’re defining the product’s place among your customers and building awareness for it.

  • Growth: In a product’s expansion phase, you’re increasing sales, developing the customer base, and exploring alternative markets for growth.

  • Maturity: When a product hits its prime, you have to protect its market share. You might notice more competitors at this stage. After a product hits its peak, try to eke out profitability for as long as possible.

  • Exit: In a product’s stage of decline, its sales are steadily decreasing and interest in it has waned. You have to decide what to do with the product — eliminate it, repackage it, or update it.

Not every product experiences all four stages of development during its life cycle. A product can move directly from the start-up phase to the exit phase, for example.

You can follow the upcoming steps to plot revenue and help determine when to phase out one product and introduce another. You have to decide when to drop a product, however. Unlike food items, not all products have sell by dates stamped on them.

Your job is to determine when a product is past its prime. A logical starting point for determining when a product has outlived its shelf life is to conduct an inventory analysis. When you’re ready to start this process, follow these steps:

  1. Make an exhaustive list of all your current product offerings.

    If you stock products, you can use a recent inventory list for this step. The most important task is to make sure that your list includes every product you offer on your site. Make a few notes about each product. You can include details such as

    • Product locations on your website

    • Product-specific promotional offers or coupons

    • Other sites that link to specific products

    • Ads or reviews that mention specific products

  2. Plot the sales history for each product.

    You should chart sales weekly, monthly, or annually. We suggest reviewing monthly sales over the past year. For older products, you can then chart annual sales for the preceding two or three years. (Likewise, for newer products, you might want to break the total monthly sales into weekly figures.)

    When you’re tracking a product’s sales history, show the data in the form of bar graphs, line graphs, or other types of charts so that you can more easily visualize the product’s progression in your overall inventory.

  3. Determine the percentage of sales for your inventory, by following this method:

    1. Divide the annual sale (in dollars) of the product by the total annual sales for all products.

    2. Multiply that number by 100.

      Your equation should look similar to this one:

      $7525.00 (product X) / $72,346.00 (total sales) = .10401 x 100 = 10.41%

  4. List the products in descending order.

    The list is then organized from highest to lowest percentage of sales.

  5. Match one of the four stages of the life cycle to each product.

    For example, products with sales that have steadily declined and account for a lesser percentage of your sales are probably in the Exit stage.

By the time you complete your list, you should see a clear picture of your inventory that shows how much, or little, each product has aged.