When you want to add choices to your products this is a great tutorial on how to add attributes and include all the variations if more than one attribute is applied. Also how to manage inventory for each variation.

How do you know if you need to add variations?

In short, variations to a product means that you can track the different types of that product.  Example a shirt, has different sizes and/or different colors so you create variations and track the inventory of the combinations.  This is also very heavily used if you are selling gummies and you offer different quantity packs, different flavors, etc..

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