Breaking the Myth: “The More SKUs, the Higher Sales.

 Breaking the Myth: “The More SKUs, the Higher Sales.”

Today, I’m starting a new series of articles about the most common stereotypes in sales strategy — beliefs that seem logical but often lead to wrong decisions. Let’s begin with one of the most widespread: the idea that “the more SKUs you list, the higher your sales.” This assumption sounds convincing — yet, in practice, it often works against both revenue and profitability. Let’s take a closer look.

Client Perspective

A professional category or purchasing manager will always correlate the number of SKUs listed by each supplier with that supplier’s commercial and financial performance. Every company allocates limited resources across its suppliers — though those resources differ by industry, business model, or complexity, the underlying logic remains the same. Whether it’s shelf space in a supermarket or the valuable time of doctors in a clinic, these are productive resources that must generate measurable returns.

In FMCG, for instance, experienced category managers evaluate suppliers using performance dashboards (Table 1) that compare suppliers’ performance (sales, SKUs, margins) against the resources allocated to them by client — shelf space, number of promotional slots, and working capital, etc. This analysis helps determine whether a supplier deserves a wider presence in the client’s assortment — or whether its range should be rationalized.

Clearly, margins depend heavily on cost allocation — storage costs, central overheads, etc., which often allocated not only by traditional keys - revenue and volume - but also based on the number of SKUs — the main source of complexity.

The resulting analysis can be visualized through a simple matrix that compares each supplier’s performance to the category average:

Table 2. Efficiency Coefficients of Resource Allocation

·       A coefficient of 1 indicates fair resource allocation (average).

·       Below 1 means efficient allocation.

·       Above 1 signals inefficiency or overuse of resources.

Suppliers consuming more than their fair share of resources will face tough negotiations — especially if their margin efficiency is below average. In such cases, SKU rationalization, reduced shelf space, or fewer promotions are inevitable.

Of course, this simplified picture becomes more complex when factoring in working capital, financing capabilities, and the bargaining power balance between client and supplier.

Supplier Perspective

For suppliers, the main objective is to maximize profit per client. Achieving this requires evaluating several key dimensions:

1.     Strategic Profit Model — Is the company focused on market share or profit maximization? Should it pursue high turnover/low margin or moderate turnover/high margin? The answer depends also on the supplier’s brand price positioning and that of competitors and clients.

2.     Client Bargaining Power and Solvency —

o   Strong bargaining power and ambition often require suppliers to invest heavily in working capital. However, capital tied in slow-moving SKUs reduces profit efficiency and asset turnover.

o   Conversely, if the client’s bargaining power is low but solvency is weak, delayed payments can create cash flow gaps and stock-outs for fast movers — reducing revenue and profitability for both parties.

3.     Supplier Positioning Within the Client — Is the supplier the key category leader, a challenger, or a complementary player?

4.     Role of Each Product in the Client’s Portfolio — Whether a SKU serves as a traffic driver, profit builder, image enhancer, or loyalty anchor defines its strategic importance. Products that don’t clearly fulfill a role are usually the first to be delisted.

5.     Financial Health of the Supplier — Strong free cash flow allows for a “strategic push” — temporarily maintaining a broader SKU portfolio to strengthen market position. Otherwise, SKU optimization must be proactive and self-driven. (See also: “Beyond Bank Loans: How SKU Optimization Can Solve Your Working Capital Crisis,” September 24, 2025.)

6.     Complexity of the Selling Story and Sales Force Capability — Technically complex products require more explanation, limiting the number of SKUs a salesperson can handle effectively. The simpler the product, the broader the SKU portfolio that can be managed efficiently.

7.     Shelf and Stock Management Impact-

Frequency of product delivery and the intensity of merchandising work — including the number of merchandisers — depend directly on how shelf stock is managed. The less space allocated to bestsellers, the more frequently shelves must be refilled with high-rotation items. Conversely, an assortment skewed toward slow movers increases the risk of out-of-stock situations for bestsellers, directly affecting sales efficiency and customer satisfaction.

Storage capacity can also become a limiting factor, requiring more frequent deliveries to maintain availability. Both limited shelf space and restricted storage facilities generate additional costs in the relationship between supplier and client — costs that are ultimately shared in proportion to each party’s bargaining power.

The Internal Balance: Sales vs. Marketing

In real business life, this discussion often turns political. Marketing departments are naturally inclined to expand portfolios, introduce new SKUs, and increase communication, rarely advocating for delisting. An effective manager must balance these internal dynamics to protect the company’s overall profitability and focus.

A practical solution is the introduction of a Sales and Marketing Contract — a formal agreement defining the annual KPIs and responsibilities of both functions:

·       number of launches,

·       listing and distribution targets,

·       communication support and share of voice, etc.

This alignment helps prevent internal friction and ensures that both teams pursue the same strategic objectives.

Conclusion

The number of SKUs is not a measure of strength. True commercial power lies in revenue growth — and the path to it often comes through SKU optimization, keeping only those products that maximize overall growth and profitability within the client’s business.