ABC analysis: find out how much you can actually earn

ABC analysis

ABC analysis is one of the most effective methods to increase sales in an online store. With its help, you will be able to deal with the assortment, outline new ways of business development and get the maximum profit. How it works, read our material.

ABC analysis

What is ABC analysis and who needs it

ABC analysis is a great way to evaluate your business resources and start allocating them more efficiently. It will help you understand what exactly brings you the main profit: which product sells best, and which positions pull the store to the bottom.

As a result of such an analysis, you will be able to conclude on which products and customers it is worth focusing maximum efforts at the moment, and on which it makes no sense to spend time and money. The method is based on the Pareto principle – 20% of all goods account for 80% of the turnover.

ABC – analysis will divide your resources into three large groups:

A: resources that bring 80% of the result (sales, profits, revenue). Usually this is about 20% of all store resources.
B: resources that give 15% of the result. Most often they make up 35-20% of all resources.
C: resources that provide 5% of the result. Their number is about 50% of all resources.
ABC analysis

Such a report will help you visually see which positions bring the most profit to the business, and which ones should be eliminated long ago. All information is provided in the form of a visual commodity matrix.

For analysis, parameters such as turnover, number of sales and specific profit are needed. The sum of these indicators for each product helps to evaluate it from different angles. In addition, the percentage of failures, the turnover rate are taken into account. If you consider only revenue or turnover, it is likely that you will not notice how one of the goods does not make a profit.

Read Also: How to prevent bots from clicking on the advertising budget or Where fraudulent traffic is hiding

Understanding the range

Let’s say you see in the matrix that your photo frames have an average number of sales (B). At the same time, low turnover (C) and low specific profit (C). From these indicators, it is obvious that you should not reduce or increase the price of this product, spend time and money on its transportation to warehouses. It is easier to liquidate the batch and stop overpaying for storage.

Goods of the AAA group sell well, bring large turnovers and high profits. They need to be constantly delivered to the warehouses of your marketplace, as well as closely monitor the availability. It is important that the balance in these categories is not less than the daily number of sales. Otherwise, the marketplace may lower their position.

The AAB and CCB commodity groups require your attention and new approaches to work. For example, if the unit profit of a product is A, but sales and turnover are low, you overpriced too much. Make a small discount, and the situation can change significantly for the better. If the problem only occurs with turnover, try raising the price of the product. So you can manage to catch up with sales.

In addition, it is worth constantly working on the positioning and promotion of these product groups. Study the experience of competitors, you can easily find them using the ACP indicator. Be sure to watch the category leaders.

Maintaining stability

Evaluate the sales stability indicator through the matrix. To use this service, you need to find an XYZ analysis in your personal account. With it, you can find out which products provide you with stability in the market.

We take risks and increase ratings

Consistency is good, but if you’re aiming for higher ratings, you can’t be afraid of new releases. Periodically test new products, introduce items into the store assortment that immediately began to actively buy. This will help you expand your boundaries: find a new audience, diversify your assortment, increase your rankings and earn money.

ABC analysis will allow you to focus on what is really important for the business at the moment. This is a simple and versatile tool that should not be neglected if you want to achieve maximum results.

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