1. The Double-Edged Sword of Product Concentration

The question every business owner grapples with: Should you double down on your top-performing products or expand your range to capture more market share? It’s a high-stakes dilemma, often balancing between streamlined success and the risk of spreading yourself too thin.

For years, businesses have operated under the assumption that diversification equals safety. After all, relying on just a few products feels inherently risky—what if consumer preferences shift, or a key product faces supply chain disruptions? On the other hand, maintaining a broad portfolio can dilute your efforts, making it harder to establish a strong competitive edge in any single area.

This tension between focus and diversification is real, and it’s not just a theoretical debate. It impacts every aspect of your business—from inventory planning to marketing spend, from product development to customer retention. The challenge lies in finding the sweet spot: how much should you rely on your top products, and when is diversification actually counterproductive?

2. A Real-World Lesson from Six Years of Shopify Data

Imagine peering into six years of data from a thriving online store. This dataset isn’t just a collection of numbers—it’s a story of growth, adaptation, and the constant dance between focus and diversification.

The business in question started with a small, highly concentrated product range. Early on, it relied heavily on a handful of top-performing items. But as time went on, new products were introduced, and the portfolio began to expand. The journey reveals a fascinating pattern: while concentration initially drove rapid growth, there came a point where diversification—not just for its own sake but in a strategic way—became essential for sustained success.

This case study isn’t about perfection; it’s about real-world trade-offs and lessons learned. By analyzing this data, we can uncover actionable insights that apply to any e-commerce business, regardless of size or industry.

3. The Math Behind the Madness: Key Metrics Every Business Should Know

If you’re not already familiar with metrics like the Herfindahl-Hirschman Index (HHI) and the Gini ratio, it’s time to get acquainted. These tools might sound intimidating, but they’re nothing more than ways to quantify how your revenue is distributed across products.

The HHI, for example, measures concentration by squaring each product’s share of total revenue and summing those squares. A high HHI means you’re relying on a few big sellers—think oligarchy in your portfolio. On the other hand, a low HHI suggests a more evenly spread-out revenue stream.

Then there’s the Gini ratio, which takes a slightly different approach by measuring inequality in your product mix. If you’ve ever heard of the Pareto principle (the 80/20 rule), this is its cousin for revenue distribution. Together, these metrics paint a vivid picture of where you stand in terms of focus versus diversification.

4. From Theory to Practice: How to Analyze Your Product Mix

Analyzing your product mix isn’t just about crunching numbers—it’s about asking the right questions and telling meaningful stories with data. Here’s how to get started:

1. Clean Your Data: Start by ensuring you have a clean, well-structured dataset. This means handling things like product variants (e.g., different sizes or colors of the same item) appropriately. Variants can skew your metrics if not managed carefully.
2. Calculate Key Metrics: Use tools like R or Python to calculate the HHI, Gini ratio, and other relevant metrics for each month or quarter. This will give you a time-series view of how your product mix is evolving.
3. Visualize the Data: Create visualizations like Lorenz curves and streamgraphs that show how revenue shifts across products over time. These tools aren’t just for data scientists—they’re for anyone who wants to tell a compelling story with their data.
4. Engage Stakeholders: Share your findings with your team or stakeholders in an interactive way. Let them play with the data—adjust revenue thresholds, explore different time periods, and see how the product mix changes dynamically.

5. Balancing Act: The Evolution of Concentration Over Time

Six years is a long time in e-commerce—and this case study shows just how much can change. Early on, the business saw high concentrations of revenue in a few products. But as new products were introduced and old ones were phased out, the mix began to diversify.

The data reveals some fascinating patterns:

• High concentration early on: A small number of products drove most of the revenue. This was both a strength and a vulnerability.
• Gradual diversification: Over time, the business added more products, spreading revenue across a broader range. This reduced risk but also diluted focus.
• Seasonal shifts: Certain products saw spikes in revenue during specific months, highlighting the importance of tracking trends over time rather than relying on single snapshots.

By analyzing these patterns, you can start to see which products are truly driving your business—and when it might be worth introducing new ones or phasing out underperformers.

6. Strategic Insights for Your Business

So, what does all this mean for your business? Here’s how to apply the insights from this analysis:

• Monitor concentration regularly: Keep an eye on your HHI and Gini ratio over time. If you notice a sharp increase in concentration, it might be worth introducing new products to balance things out.
• Diversify strategically: Diversification isn’t just about adding more products—it’s about adding the right ones. Look for gaps in your market or customer needs that you can fill with new offerings.
• Leverage data for decision-making: Use tools like interactive dashboards to explore different scenarios. For example, what happens if you remove a top-performing product? How does that impact your overall revenue?

7. Conclusion: Finding the Right Balance

At the end of the day, the key to business success is finding the right balance between focus and diversification. It’s not about being all-in on one strategy or the other—it’s about understanding how your product mix evolves over time and making data-driven decisions based on that insight.

Whether you’re a seasoned e-commerce veteran or just starting out, the lessons from this case study are timeless: know your products, track their performance, and be ready to adapt when necessary.

This article is part of a series exploring e-commerce analytics and product strategy. If you found it valuable, consider sharing it with your team or peers—every business can benefit from a closer look at its product mix!