ABC Analysis

ABC Analysis

There are numerous opportunities in the economy to increase turnover. Some methods can also be applied to online marketing and they serve to constantly improve business processes and subsequently increase turnover. An ABC analysis is one of these methods, because it is an important tool for the optimisation of business processes.

How does an ABC analysis work?

An ABC analysis serves to calculate from a business management point of view which things are very important for a company, which are necessary and which areas are rather unimportant. The parameters A, B and C stand for all three points and their values provide information about the optimisation. The most important factors that are included in the calculation are the prices in purchasing, the respective turnover, the achieved profit and consumption data. Suppliers and the procurement of raw materials are also included in the calculation.

ABC analysis and the 80/20 rule

The basis for an ABC analysis is the so-called 80/20 rule. This rule states that 80 per cent of the achieved sales are generated by 20 per cent of the customers. If one assumes that a company has customers with different sales, the analysis can be carried out.

ABC analysis in the online shop

Let us assume that an online shop wants to introduce free shipping for very good customers. Then you have to calculate the turnover achieved for all customers for different periods of time. You also calculate the average value of the orders placed and the share of the total turnover of an online shop. Now one divides the determined data of the buyers into A, B and C customers, whose parameters are determined in advance by the company. Once the A customers have been defined, one looks at the B and C customers. In doing so, one determines which customers have the potential to become A-customers or rather cost more money due to high administrative effort. The ABC analysis cannot be carried out for customers whose sales show hardly any differences.

Pros and cons of the ABC analysis

An ABC analysis can be evaluated positively or negatively. The advantages of an ABC analysis are obvious.

Pro:

• The strong focus on the most important parameters of a company.
• The quick results for a decision making process.
• The ABC Analysis can be used in almost all areas.

Contra:

• The short time period of the analysis does not provide sufficient information.
• The ABC analysis does not provide any information about the future potential of the customers, but only that of the period considered.
• No quality characteristics are recorded which would make a customer equally valuable. Customer loyalty us so on…
• Customer development is also not taken into account, as only a certain period of time is recorded.
• If a customer has only just become a customer, his actual potential is often incorrectly recorded.

In online marketing, the ABC can be used very well for quick analyses and targeted measures can be taken to increase the sales of individual customers in the long term. However, the analysis should be repeated in regular cycles so that the right customers are always rewarded. Please do not hesitate to contact us if you have any questions about this marketing instrument.

Source: ABC-Analyse