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abc analysis in sales

Once any business was founded on the principle of "buy cheap, sell expensive", but, alas, time goes by, the financial mechanisms are complicated, and the market is saturated quality and diverse products. But how to cope with high competition? What products need to focus, and what better to forget about? Oddly enough, this will help us ABC analysis is a simple and effective tool for collection and analysis of any statistical information. This analysis will allow you to find the ideal business strategy and the best goods for sale, find in the market is the most promising customers, to save the most money and bring any profit to a minimum. So, what ABC analysis and how to spend it with the conventional signs in Microsoft Office Excel?

What is abc-analysis?

 Example abc analysis

This is a universal tool, which today is used by sales (to analyze all the data and identify the most promising customers, sales representatives and the like), Finance (to carry out the analysis of accounts receivable) and purchasing departments (to determine the most popular range of products, brands, manufacturers, etc.)

In fact, abs analysis is a methodology, based on the principle Italian mathematician Pareto and allowing to classify any company resources on their importance for the enterprise. The Pareto principle States that 20% of all sold by a trader of the goods shall provide 80% of money turnover. Accordingly, 20% of customers give 80% of profit, 20% of raw materials and components provide 80% of the demand, and control over 20% of trading positions allows you to control 80% of the total market. So, if properly identify these key 20%, you'll have to make up for their enterprises private winning business plan. This is what is needed methodology ABC.

Any trading company is trying to control the range of its products, not at random, but based on the testimony of the ABC-analysis - for example, concentrates on those products and services that make 80% of money turnover, and takes off with the production of those goods and services that represent less than 5% of the profit. Product managers analyze, identify top the list of the most popular products and pre-order them at their warehouses, at the same time getting rid of "illiquid" products.

How often should be conducted abc-analysis?

As you already understood, ABC analysis is simple and accessible to every Manager ranking assortment, stocks, suppliers and buyers using available Analytics statistics. All objects of the analysis are grouped according to the degree of influence of these objects on the final result of the business process.

Holding ABC analysis does not require you to install any special software, and the procedure itself is not overly time-consuming. It is enough to group all data in Microsoft Office Excel and a few minutes to identify the most liquid and illiquid positions of the list. The experts therefore recommend to repeat the procedure at least once a month, using data for the last six months. This way you can in real time to monitor trends of sales, growth of demand for certain positions and so on.

If done abc analysis of sales slightly less often (for example, once a quarter), you might miss the changes in trends - and then you don't purchase the goods, the most profitable in the new season, or purchase it in insufficient quantities.


 An example of a chart with abc data analysis

When performing analysis on all assortment of the company (or customer base) share either three or five categories. A simplified analysis provides a breakdown of all products in following categories:

Modified ABC analysis involves two additional categories:

What can be said about each of these groups? Goods class And bring the company's biggest profit, because their quality and quantity need to watch most carefully. Goods class To bring the company to a fairly large share of the profit, and with proper advertising campaigns of some goods category In may develop in products of category A. the Class are goods, the sale of which with time will be abolished.

Category D can safely be removed from the sales and category N need to give several months for "swinging" and to see in which of the categories will move this type of goods.

Proceed to the abc-analysis: first steps

For starters, make sure that your firm or company conducted a full accounting of the object that you want to analyze (for example, does your company account products sales and resale?) You will be quite tables in Microsoft Office Excel, which indicated the number and movement of goods. Having collected the material, proceed to the ABC-analysis.

Create a report about the sold goods for the last six months or at least for the last three months. Transfer data in Excel (the first column is the item number, the second the number of sales). Consider the following:

The plan of realization of the abc-analysis

A concrete example abc-analysis

Let's have a visual abc analysis - an example of how you can simplify your life and help to find the most demanded goods. So:

That's all there is to know about the ABC analysis! Boldly experiment with different objects of study, and also with different parameters, check the gross turnover of goods and the resulting profits - all this will help you take your business plan to a qualitatively new level of development!

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