20% of Your Products Carry 80% of Your Value — Are You Still Controlling All of Them the Same Way?
20% of Your Products Carry 80% of Your Value — Are You Still Controlling All of Them the Same Way?
Think about your warehouse: you surely have products that go out every week and products that have sat on the same shelf for months. You have items that move real money and others so cheap that a mistake with them barely shows in your cash register. Now answer honestly: do you give all of them the same care? Do you count everything every month the same way, review the levels of everything the same way, and buy everything the same way? If you do, you are not doing a bad job: you are doing a badly distributed one. And that disorder has a concrete price. The hours you spend counting low-value items are hours you do not spend protecting the ones that actually keep your business alive. Your best-selling product runs out of stock while you tidy shelves full of things that barely move. The solution is not to work more; it is to work smarter, and there is a simple, proven method for that: ABC classification. In this article I explain what it is, how to classify your catalog by sales value or turnover, and what should change in your warehouse and in your purchasing based on each product class. By the end you will have a clear rule for deciding what gets counted every week, what gets counted every month, and what gets reviewed only a couple of times a year.What is ABC classification?
ABC classification starts from an observation that repeats in almost every business: a few products concentrate most of the value or most of the movement. In practice it looks like this:- Class A: a small group of products, usually between 10% and 20% of your SKUs, that generates between 70% and 80% of your sales value or warehouse movement. These are your star products: the ones that sell every day or the ones that cost the most.
- Class B: a middle group, around 20% to 30% of your products, contributing between 15% and 20% of the value. These are important products that support your sales and round out your assortment.
- Class C: most of your references, between 50% and 70% of them, representing only 5% to 10% of the value. They are many products, almost always cheap or slow-moving: the ones sitting on the shelf just in case.
The price of controlling everything the same way
When every SKU gets identical treatment, the business pays several costs that almost nobody adds up:- Endless counts: a full physical inventory means counting hundreds of items, including a mountain of cheap products that never get lost. The time left to protect what matters never comes.
- Stockouts where it actually hurts: attention spreads across the whole catalog and your star product runs out right in the week of highest demand. That sale does not come back: the customer buys it somewhere else.
- Money sleeping on the shelves: one idle class C item is nothing, but fifty idle class C items are a serious amount of capital frozen in things that do not move.
- Shrinkage nobody detects: expirations, damage and obsolescence hit the expensive or perishable items first, and if those are not watched closely, the loss shows up when it is already too late.
How to classify by sales value
The most common way to classify is by each product annual sales value: how much money each SKU moved in the last year. The calculation is simple: units sold in the period times the unit price or cost. To do it in order:- Generate a sales or issue report per product for the last twelve months. If you use an inventory system, that report takes minutes; Kardex Tauro, for example, produces value and turnover reports per product ready to classify.
- Calculate each SKU annual value (quantity sold times unit value) and sort the list from highest to lowest.
- Add the values in order and calculate the cumulative percentage over the total: that shows you how many products it takes to reach 80% of the value.
- Assign the classes: the first products, until you cover roughly 70% to 80% of cumulative value, are class A; the next ones, up to about 95%, are class B; everything else is class C.
Value or turnover? When to use each criterion
Sales value is not the only possible criterion. Some businesses are better off classifying by turnover — how many times the product leaves the warehouse in a period:- By sales value: recommended for hardware stores, spare parts, groceries and general retail, where the goal is to protect the money each SKU moves.
- By turnover: recommended when products expire, go out of fashion or change version: food, cosmetics, fashion, technology. There, an expensive product that rotates slowly can be less risky than a cheap product that sits still until it expires.
What changes in the warehouse and in purchasing
Once the catalog is classified, the class drives three concrete decisions: where to store each product, how often to count it, and how much stock to hold. Physical location. Class A products go within reach: at eye or waist height, near the shipping area or the counter, so preparing an order does not mean walking to the back of the warehouse. Class B goes on middle shelves, and class C goes on the top shelves or in the back storage, with a single open unit for daily picking. Counting frequency. Class A items are counted every week or every two weeks, because a shortage there shows up immediately in your cash register. Class B items are counted in the normal monthly inventory. Class C items are counted once a quarter or twice a year: if you lose one cheap broom, the blow is small; if you lose your best-selling product, it is not. Stock levels. For class A, set up safety stock, a reorder point and frequent replenishment in small lots. For class C, the rule is the opposite: large, spaced-out orders, light review and, above all, the discipline not to accumulate.Table: control by class
Here is the full policy, class by class:| Class | What it includes | % of SKUs | % of value | Suggested counting | Location and purchasing |
|---|---|---|---|---|---|
| A | Few products, high value or high sales | 10% to 20% | 70% to 80% | Weekly or biweekly | Within reach, near shipping; frequent orders in small lots with safety stock |
| B | Products that round out the assortment | 20% to 30% | 15% to 20% | Monthly | Middle shelves; normal review with a reorder point |
| C | Many cheap or slow-moving products | 50% to 70% | 5% to 10% | Quarterly or semiannual | Top shelves or back storage; large, spaced-out orders, no accumulation |