ABC analysis is a method of ranking products, customers, or similar factors by sales volume or importance. Typically, 20% of products account for 80% of sales (the 20/80 rule). It allows for a cleansing of less interesting products or customers and verifying whether prices and other conditions are well established. The A items are few but important, the C items are many but not very important, while the B items represent a similar percentage of the total items and total sales.
How to Conduct ABC Analysis in Finance
Step 1: Define the Objective
Step 2: Collect and Compile Data
Step 3: Determine Criteria for Classification
Step 4: Calculate and Rank Items
Step 5: Assign Categories
Step 6: Review and Adjust