ABC analysis: how to find out on what makes the most business

According to Pareto principle 80% of the profits business generates 20% of the goods. If you have an online store, 80% of the profits you earn 20% range. Tell us about a method that will help you quickly and accurately identify the most 20%.

The essence of the ABC analysis

Take the office supply store. In order not to complicate, limit the range of 10 positions.

Here we get the following table.

Assortment stationery store for ABC-analysis

Then we act in the following sequence:

1. Sort products and profit that they bring us, in descending order. Manual do not have to - smart electronic tablet can handle herself.
2. We calculate the share of each product in the total profit of business - this column 3 'share of total income "in the table below.
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3. And now the fun: from product to product consider their total share of the profits on an accrual basis. The proportion of the markers, which took first place in brought by arrived, — 33,78%. In second place - the pen with 28.41% of the profits. Together, these two products bring business 66.29% of the profits. And so on. Ask - Why, after all, and so we know that in the end will turn out 100%? And the fact of the matter is that we are interested in intermediate values. After all, we want to know exactly which products form 80% of the profits and the role of others. The answer - in the table, which we turned. The share of individual products we see in the third column. But by itself it still does not speak about. We sort the items into groups according to their share of total income. It is this combined share smart label and believes in the 4th column, "total share."
4. And finally - sort the items into groups. All that is in the amount of less than or equal to 80% - Group A. This is the main "breadwinners" of business. Once we reached the threshold of 80%, the first product, the total share of the profits from which the participation of more than 80%, belongs to the group B. In this example, a notebook into a cell. They increase the total share of the total profit of the company from 75.76% to 84.28%. When the next item will increase the total share of the profit up to 95% or more, this is the first product from group C. In our example, this sketch drawing - after which the total share of the profit increased to 96.59%. All that remains - this is also the group C.

As you can see, 75,76% of the profits on the store makes markers, pens and notebooks in line. Notebook in a cell shared notebooks and notebooks bring businesses 17.99% of the profits. The remaining four positions - 6.25%.

In a classic embodiment ABC analysis ratio between groups A, B and C - 80/15/5. 20% of the profit that a business, according to Pareto principleReceives 80% of the goods, in the ABC-analysis is further detailed - 15/5.

We've got a different ratio - 75.76 / 17.99 / 6.25. Nothing wrong. Business realities do not always fit into the classics. The main thing - that the total amount was 100%. This self-test.

Result ABC analysis

After ABC analysis of the range in terms of revenue or profits, we will see on what products should be emphasized. Goods that sell well and bring major money business, pay maximum attention. What should I do with the others, especially outsiders, bringing the minimum revenue / profit - a reason to think hard.

We sorted products in three groups:

1. Group A. Leader - 80% of sales, 20% of resources.
2. Group B. Solid middling - 15% of sales, 20-35% of the resources.
3. Group C. Outsiders - 5% of sales, 50-60% of the resources.

The information to which group product - the basis for decision-making.

Products in Group A must be in stock at all times. Shortages of group A - a sagging revenue. As a result, ABC analysis, we got ready a list of such products. This list can always be compared with the current situation. And if you need time to purchase the missing product.

But do large stocks of goods of the group - only to freeze in their profits. Of goods from group C can be safely discarded or supply them to order. Solve the owner - whether the goods to him from the group C is needed

When the business owner wants to know exactly how much of each item in group A should be in stock, ABC analysis is not an assistant. For this purpose there is a separate tool called XYZ-analysis. But this is a topic for another article. We must start in any case with the ABC analysis.

It is useful to conduct ABC analysis range separately for the two indicators - revenue and profit - and compare the results. Common case - the goods of group A in terms of revenue earnings are in Group B and then C. But the goods of group A in terms of revenue in any case provide a flow of money into the company, and this is important. When the owner has identified a commodity - there is reason to think. Maybe there are ways to make it more profitable. And if you give up the goods of the group of profit, from those that revenue in Group A, - in the last turn.

If you do not conduct ABC analysis on both counts, there is a risk not to focus on that. Or to reject the goods, which would be worth to keep.

Other uses of the ABC-analysis

ABC analysis is applicable not only to the range. Recently, we made it in terms of revenue for the shipping company. The owner has developed a loyalty program and would like to know whom to include it. You will need information, how many percent of the revenue it brings every customer and how customers are distributed between groups A, B and C.

In this case, place the goods in the table occupied customers and revenues that accrue from the business each of them. Such a table would look like this (all names and fictional figures, possible matches with real random).

After ABC analysis table will look like this:

Now the owner knows to whom he makes of the clients the most money of them - middling in terms of revenue, which brings the business, and who - the outsider.

Loyalty program business owner will offer its customers from Group A, in holding that the most interested. A group of customers in using the loyalty program will encourage more orders to do and move on to the group A. With customers from Group C, he continues to work. But to offer them participation in the loyalty program do not see the point.

Regulations ABC analysis

1. Conduct ABC analysis should be one indicator that can be measured in money. This can be revenue, profit, the amount of procurement, accounts receivable (everything should be business) or accounts debts (Everything that has to Business). All objects ABC analysis must be tied to the numbers: how much revenue or profits from each product or customer, how much business earns Each supplier or how much we buy from each supplier as accounts receivable hanging on each debtor as a business owes to everyone creditor.
2. Objects ABC analysis can be individual products or groups of products, customer base, supplier base, the base of debtors, creditors base.
3. ABC analysis is conducted within the boundaries of a single direction. When a business sells both cars, spare parts and repairs cars - three separate directions. Be reduced to one tablet automobiles and spare parts makes no sense. These are the goods of different price categories and frequency of consumption: the car, we change every few years, and spare parts for cars buy more often. Objects ABC analysis should possess comparable parameters.
4. ABC analysis is usually performed to correct strategic plans business. In such cases, it is carried out once a year and once a quarter actualize data. But if the goal - to increase the average check, you can use ABC analysis, and once a month. This approach allows you to see how management decisions are reflected in the distribution of profits between the groups and categories.

conclusion

ABC analysis - a tool with which you can sort the products, customers, debtors and creditors on the leaders, middling and outsiders. Learn to who and what most are earning from what and whom you can easily give up, who more than anyone else owes you, and to whom - you.

see also

• 3 reasons why your business is not profitable →
• How to write a business plan: 6 important points →
• Why entrepreneurs to conduct financial accounting →