How to Decide the Categories and Subcategories for Your Products and Services, and Why It Matters

You can group all of your products and services across several levels, creating categories and subcategories within them. This is also known as an item hierarchy.

For example, you might have a children's clothing category with women's and men's subcategories inside it.

Grouping items matters a great deal, because it later lets you produce various kinds of report very easily, taking a given category, subcategory or several of them as your criterion.

Reports you might produce include a sales analysis or a stock analysis.

That leaves the question of how to do the grouping.

Below are some approaches you could apply:

• Group items by manufacturer or supplier. This makes sense when you sell a single type of item — perfumes, for instance. In that case grouping by manufacturer is sensible, because it is effectively the only division you are likely to need, and the one you will use later to analyse your business and make important decisions.
• Group items by the type they belong to. This makes sense if you sell consumer electronics, say, and therefore have product groups such as mobile phones, computers and so on. Dividing by item type works here because it lets you look easily at various sales or stock indicators for a given product group, and run further analysis on subgroups within it.
• Group items by your customers' buying habits. This makes sense if you have a large number of different items that group naturally around the way your customers buy them. An example would be a pet shop, where you group products into three broad groups: dog food, cat food and food for other pets. Within those groups you then divide by manufacturer or some other criterion. Another example would be a florist, where the main categories might be bouquets, Valentine's Day, buttonholes and the like.
• Group items by individual product. This makes sense where the manufacturer, or brand, matters less to customers than getting the product they need at the best price. An example would be a tyre shop, where the main categories are tyres of particular dimensions, divided by manufacturer within them.
• Group items around your own production. This makes sense if you manufacture yourself and want to run various analyses on particular groups of your products. An example would be a company making ventilation products, with groups such as ducting, kitchen hoods and so on.

TiramisuERP makes it very simple to build an item hierarchy in various ways — whichever suits you — and then to produce different reports and make important business decisions.