The ABC sales: contribution analysis helps companies to identify the relative value of different market segments and assists in deciding on resource allocation as a result.
- List out for each segment served by the business (may be by product for example or territory) current sales in volume or value of turnover.
- List out for each segment the current levels of financial contribution ( sales revenue/turnover minus all variable costs)
- Graph the data for current sales and for financial contribution on a chart like the below.
- In the ideal all segments will appear in the top right quadrant – high sales, at high financial contribution. Reality may be though that segments will appear in the lower left quadrant – low sales, low contribution or it may be high sales low contribution.
- Not all segments will be close to the ‘optimum’ diagonal line bottom left to top right and these outliers require attention:
– A question mark should hang over any segment located in the bottom left quadrant – they are draining marketing and sales resources
– High volume sales segments in the top left quadrant should be examined for opportunities to increase contribution, even by a few percent.
– High contribution segments in the bottom right quadrant should similarly be examined for opportunities to increase sales volumes, again even by a few percent.