Category performance analysis: portfolio health check
How to evaluate the health and balance of your product categories for sustainable growth
Categories are the building blocks
Your business isn’t a single entity—it’s a portfolio of product categories, each with different economics, growth trajectories, and strategic roles. Analyzing category performance reveals whether your portfolio is balanced, where to invest, and which categories might be dragging overall performance down.
Defining meaningful categories
Category structure affects analysis quality.
Too broad:
“Apparel” hides variation between tops, bottoms, and accessories. You need granularity to see patterns.
Too narrow:
“Blue medium t-shirts” creates noise without meaningful patterns. Aggregate to actionable levels.
Customer-relevant groupings:
Categories should reflect how customers think and shop. If customers browse by use case, organize analysis by use case.
Revenue distribution analysis
How revenue spreads across categories.
Concentration risk:
If one category generates 70% of revenue, you’re vulnerable. Category-specific problems become business-threatening.
Healthy distribution:
Multiple meaningful categories reduce risk. No single category failure can sink the business.
The 80/20 pattern:
Most businesses see revenue concentration. Understand your pattern and whether it’s intentional or problematic.
Margin analysis by category
Categories have different profit profiles.
Gross margin variation:
Calculate gross margin by category. Which categories contribute most to profit per dollar sold?
Contribution margin variation:
Include variable costs like shipping and returns. Some categories have hidden costs that erode gross margin.
Margin versus revenue mismatch:
Categories generating high revenue but low margin might be subsidized by smaller, higher-margin categories. Know where profit actually comes from.
Growth trajectory by category
Categories grow at different rates.
High-growth categories:
Categories growing faster than overall business. Potential future revenue drivers.
Stable categories:
Consistent performance, neither growing nor declining. Reliable foundation.
Declining categories:
Categories shrinking over time. Might need intervention or managed wind-down.
Growth rate comparison:
Compare category growth to market growth for that category. Are you gaining or losing share?
Strategic role classification
Different categories serve different purposes.
Traffic drivers:
Categories that bring customers to your store. Might have lower margins but generate visits.
Profit generators:
Categories that deliver margin. Might not be highest revenue but contribute most profit.
Customer acquisition categories:
Products that attract new customers. Entry points to your brand.
Retention categories:
Products that bring customers back. Replenishables or complementary purchases.
The BCG matrix for e-commerce
Adapt classic portfolio analysis.
Stars:
High growth, high margin. Invest heavily. These drive future success.
Cash cows:
Low growth, high margin. Maintain but don’t overinvest. They fund investment elsewhere.
Question marks:
High growth, low margin. Potential but unproven. Decide whether to invest or exit.
Dogs:
Low growth, low margin. Candidates for discontinuation unless serving strategic purpose.
Inventory health by category
How efficiently is capital deployed?
Turnover by category:
Which categories turn inventory fastest? Fast turns mean efficient capital use.
Dead stock concentration:
Which categories accumulate dead stock? These tie up capital unproductively.
GMROI by category:
Gross margin return on inventory investment. Which categories generate best return on inventory investment?
Customer behavior by category
How customers interact with different categories.
Entry categories:
Which categories do new customers buy first? These are your acquisition products.
Expansion categories:
Which categories do customers explore after initial purchase? These drive basket growth.
Retention categories:
Which categories bring customers back repeatedly? These drive lifetime value.
Return rates by category
Returns vary significantly by category.
Return rate comparison:
Which categories have highest return rates? These erode margin and consume operations.
Return-adjusted margin:
Calculate margin after accounting for returns. High-margin categories with high returns might be less profitable than they appear.
Competitive position by category
Your strength varies across categories.
Market position:
In which categories are you a leader versus a follower? Where do you have competitive advantage?
Pricing power:
Which categories allow premium pricing? Where are you competing on price?
Differentiation:
Which categories have differentiated offerings? Where are you selling commodities?
Portfolio balance assessment
Evaluate overall portfolio health.
Risk diversification:
Is revenue spread across multiple categories? Would one category failure be survivable?
Growth sources:
Do you have categories positioned for future growth? Or is everything mature or declining?
Margin foundation:
Do high-margin categories constitute enough of the business to support overall profitability?
Customer journey coverage:
Do categories support acquisition, expansion, and retention? Or are there gaps?
Taking action on category analysis
Analysis should drive decisions.
Investment allocation:
Shift marketing and inventory investment toward high-performing categories.
Exit decisions:
Consider discontinuing categories that underperform without strategic value.
Development priorities:
Expand high-potential categories with new products or variants.
Pricing adjustments:
Optimize pricing by category based on competitive position and margin requirements.
Category metrics to track
Focus on these category analytics:
Revenue distribution across categories. Gross and contribution margin by category. Year-over-year growth rate by category. Market growth comparison (your growth versus market). Inventory turnover by category. GMROI by category. Return rate by category. Customer acquisition by entry category. Cross-category expansion patterns. Dead stock concentration by category. Strategic role classification.
Category analysis reveals portfolio health. Regular review ensures balanced investment, identifies problems early, and keeps your business positioned for sustainable growth.
