Most ecommerce businesses use Xero tracking categories, but few unlock their full potential. Without the right structure, hidden margin leaks and endless reconciliation headaches can slow growth and cloud decision-making.
This guide shows how to plan, implement, and optimize tracking categories for real business impact, with automation tips for scaling teams.
Xero tracking categories let businesses segment financial data for true visibility into channel, product, and location performance.
Instead of lumping all revenue and expenses together, tracking categories break down results by the segments that matter most, transforming raw numbers into actionable insights.
A multi-channel seller discovers Amazon fees eat 15% more margin than Shopify. This data drives immediate budget reallocation to higher-margin channels.
A retailer finds wholesale orders are 40% more profitable than direct-to-consumer sales, informing expansion priorities. A subscription business identifies that one tier costs significantly more to support, guiding pricing strategy adjustments.
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Business question |
Tracking category solution |
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Which channel is most profitable? |
Channel tracking (Amazon, Shopify, Direct) |
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Which products drive margin? |
Product category tracking (Premium, Standard) |
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Which locations perform best? |
Location tracking (Store A, Store B, Online) |
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Which customer types are most valuable? |
Customer type tracking (Wholesale, Retail) |
Table 1: Categorize tracking
For businesses syncing sales from multiple channels, accounting automation tools like Webgility ensure tracking categories are applied consistently, powering real-time insights without manual tagging.
To unlock these insights, a tracking structure tailored to the business is essential. Here is how to plan it.
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Careful planning prevents costly rework and ensures tracking categories support real business decisions.
Xero allows only two active tracking categories at once, with up to 100 options each. This limitation makes strategic planning essential. The right structure delivers actionable, scalable reporting.
Primary category: Product Category (Apparel, Footwear, Accessories)
Secondary category: Supplier or Cost Tier
Reporting output: Clear visibility into product line profitability and supplier performance
Best for: Businesses focused on optimizing product mix and vendor relationships
Primary category: Sales Channel (Shopify, Amazon, eBay, Direct)
Secondary category: Product Category
Reporting output: Channel-by-channel P&L revealing true marketplace fees and margins
Best for: Sellers needing to optimize channel mix and understand platform economics
Primary category: Customer Type (Wholesale, DTC, Corporate)
Secondary category: Region (North, South, East, West)
Reporting output: Customer segment profitability by geography
Best for: Businesses balancing wholesale and retail with regional considerations
A simple planning checklist:
When planning for multi-channel setups, Xero automation tools like Webgility batch-map SKUs and locations, reducing manual effort.
Avoiding common pitfalls ensures tracking categories remain useful and error-free as the business grows. Most tracking category problems stem from poor initial setup. Here is how to get it right the first time.
Top mistakes to avoid:
A quick planning checklist:
Automated sync tools help enforce naming consistency and prevent mapping errors at scale. With a plan and pitfalls in mind, here is how to set up tracking categories the right way.
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Choose the setup method that matches business complexity, manual for small teams, bulk or automation for scaling sellers.
For businesses with fewer than 100 SKUs and one or two channels, manual setup in Xero is straightforward. Navigate to Accounting > Advanced > Tracking categories, add a category (such as “Channel” or “Product”), and enter options.
Assign categories to each transaction as it is entered.
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For larger businesses, Xero supports CSV import for bulk creation and mapping. Prepare a CSV with all SKUs, channels, or locations, and import using Xero’s data tools. This is efficient for a one-time setup or historical data migration.
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For sellers managing hundreds of SKUs or multiple channels, Webgility automates bulk mapping of sales data to Xero tracking categories, eliminating manual entry.
Webgility connects ecommerce platforms and marketplaces to Xero, applying tracking categories based on rules set by the business.
Once set up, maintaining accurate tracking categories is key as the business evolves.
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Regular updates and disciplined processes keep tracking categories useful and accurate. As the business changes, categories may need to be edited, archived, or restructured.
Xero allows renaming categories or adding new options without affecting historical data. Deleting a category archives it, preserving historical reports but removing it from new entries. Plan changes at logical breakpoints (such as quarter-end) to avoid breaking reports.
Changing categories mid-year archives old data and starts new tracking. To maintain audit trails, document all changes and communicate with the team. Automated sync tools like Webgility help restructure categories without losing historical accuracy, ensuring seamless transitions as the business scales.
For example, when launching internationally, add location tracking with minimal disruption by planning ahead and using automation.
With Xero tracking categories maintained, here is how to turn data into actionable insights.
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Advanced Xero reporting combines tracking categories with live data for true business intelligence. Segmented profit and loss reports by channel, SKU, or region reveal where margin is made or lost.
To build a segmented P&L in Xero, select “Compare by” and choose the tracking category. This displays revenue, costs, and profit by channel or product, highlighting margin gaps and growth opportunities.
Integrating tracking with real-time inventory and orders is where Xero accounting automation shines. Webgility connects Xero tracking categories with live ecommerce data, enabling dashboards that show SKU and channel profitability.
Ready to turn tracking categories into a growth engine? Book a demo with Webgility today.
Start by identifying the two business segments that impact your decisions most, such as sales channels or product categories. Consider your reporting needs and future growth plans to ensure your structure remains useful as your business evolves.
Yes, you can rename or archive categories without losing historical data. However, adding new categories starts fresh tracking, so plan changes at logical intervals to avoid disrupting reports.
Automation saves time and reduces errors by consistently applying tracking categories across all channels and transactions. This ensures accurate reporting and frees up your team for more valuable work.
If you need to track more than two dimensions, use tags, business intelligence tools, or automation platforms to layer additional analytics on top of Xero’s built-in categories.