Unlocking Profitable Inventory Control with the Sales-Margin Matrix

Reading Time: 3 minutes

Every business, regardless of industry, shares a few fundamental goals when it comes to inventory:

• Sell goods at a strong profit margin
• Sell a high volume of these goods
• Know when to discount products to move them quickly
• Eliminate slow-moving, low-profit stock

In short, the goal is to have the right amount of the right goods available at the right time. This is the promise of effective inventory control—a discipline that, when done well, boosts profitability, reduces waste, and improves customer satisfaction.

One of the most useful tools for mastering this balance is deceptively simple: a matrix that plots sales volume against profit margin. With this visual tool, businesses can make smarter decisions about what to stock, what to promote, what to discount, and what to phase out.

The Inventory Control Matrix: Sales vs. Margin

To create the Inventory Control matrix, we take two key product performance metrics:

• Sales Volume (Low to High)
• Profit Margin (Low to High)

These two axes intersect to form a 2×2 matrix that categorizes your products into four distinct groups:

Let’s break down each quadrant:

⭐️ Stars (High Sales, High Margin)

These are your dream products. They sell frequently and deliver excellent profit per unit. Stars are the lifeblood of your business.

What to do with Stars:

• Keep stock levels high to meet demand.
• Promote them to attract more attention.
• Explore cross-sell or upsell opportunities.
• Use insights from these products to find similar winning items.

🚀 Traffic Drivers (High Sales, Low Margin)

These products sell like hotcakes, but they don’t make much profit individually. Still, they’re important because they bring traffic to your store or website, and often drive volume-based revenue.

What to do with Traffic Drivers:

• Evaluate bundling opportunities with higher-margin items.
• Negotiate better pricing with suppliers to improve margins.
• Use them strategically during promotions to increase footfall.
• Track lifetime customer value if they lead to repeat purchases.

🧠 Hidden Gems (Low Sales, High Margin)

These products don’t fly off the shelves, but when they do sell, they deliver great profit. They may be niche, seasonal, or under-promoted.

What to do with Hidden Gems:

• Investigate why sales are low – Is it poor visibility? Bad placement? Weak marketing?
• Test different marketing strategies (email, social, influencer content).
• Improve product descriptions or photos if selling online.
• Consider targeted promotions rather than broad discounts.

🧱 Dead Weight (Low Sales, Low Margin)

These products are tying up your capital and shelf space without delivering meaningful returns. Every business has some of these, especially if the product portfolio isn’t regularly reviewed.

What to do with Dead Weight:

• Run clearance sales or heavy discounts to free up inventory space.
• Avoid reordering unless there’s a clear turnaround plan.
• Investigate root causes (poor quality, misfit for the market, bad pricing).
• Consider product retirement or liquidation if needed.

Why This Matrix Matters

Many businesses operate in the dark when it comes to their product performance. Without regular review, it’s easy to continue stocking products that used to sell, or are emotionally favored by the team, but no longer make financial sense.

This matrix creates a clear visual snapshot of your inventory performance. It helps you make fast, data-driven decisions that support your business goals—whether that’s maximizing profit, clearing space for new items, or improving operational efficiency.

Moreover, it bridges the gap between sales teams (who often focus on volume) and finance teams (who focus on margins), encouraging cross-functional decisions that benefit the whole business.

Making It Work: How to Build Your Matrix

1. Pull your data: Start with sales and profit data by SKU (stock-keeping unit). You’ll need volume sold and margin per unit or as a percentage.
2. Define thresholds: Determine what counts as “low” vs. “high” for both metrics. This may vary by industry or product type.
3. Plot each product: Place them into one of the four quadrants.
4. Review quarterly: Product performance can shift, so make this a regular part of your inventory control process.

You can use tools like Excel, Google Sheets, or even more sophisticated BI tools to automate and update this matrix.

Beyond the Matrix: Taking Action

The matrix is a starting point. The real power comes from what you do with the insight. Here are a few next steps to consider:

• Reallocate marketing budget toward Stars and Hidden Gems.
• Create bundles that pair Traffic Drivers with Stars or Gems.
• Set reorder alerts only for products in the top-right quadrants.
• Design promotions for Dead Weight stock to recover cash.
• Engage your team: Share this matrix with buying, marketing, and sales teams so everyone aligns on what matters most.

Final Thoughts

Inventory control doesn’t have to be complex or overwhelming. A simple matrix of sales vs. margin can illuminate what’s working, what’s dragging, and what deserves more attention. In the end, great inventory control isn’t just about reducing waste or keeping shelves tidy—it’s about maximizing profit and delighting customers. And the best time to start? Right now. Grab your data, plot your matrix, and watch clarity—and profitability—start to emerge.