The Agency Blogger
Agency Management & Controlling
Smart in 60 seconds! ABC-Analysis
New week, new term: Today we are continuing with our new series: “The Agency Blogger”. Here we explain the most important terms from agency controlling in a short and sweet, but practical manner. Today: The ABC analysis.
Reduce expenses, maximise profit. That is what all companies strive for. But it is also important to keep an eye on all resources. With the help of the ABC analysis, the current resource utilisation of individual areas is compared with company profits. The ratio of expenses and profits is examined carefully here. Worldwide studies showed that often 20 percent of the products generate 80 percent of revenue. This phenomenon is known as the Pareto principle and can be transferred to other business areas as well. Agency software, for example, can be used for this. The software can be used to find out how costs can be reduced and profits increased. An example: 20 percent of the customers (returning customers, key customers) are responsible for 80 percent of revenue. Important activities require 20 percent of the time; unimportant tasks waste 80 percent of the work time. With the help of the ABC analysis, the area that places attention on what is most important can be determined. Agency software can work out which products and services are responsible for a company’s revenue or which customers and suppliers are indispensable for success and profit. The objectives of the ABC analysis are short and sweet:
1. Separate the important things from the unimportant things
2. Create transparency
3. Identify points for improvement
4. Point out rationalisation potential
5. Avoid non-profitable projects
6. Increase efficiency
The prioritisation of the ABC analysis can be done as follows:
A = very important or urgent
B = important or urgent
C = less important or urgent
This ranking can be used for the classification of a large amount of data, for example, from processes, customers, products, etc. Agency software also makes it easier to categorise at this point.