ABC Classification

Classifying products or customers by sales volume. Classification A may represent products or customers that generate, let us say, 70% of the total revenue; classification B, 20% of the total revenue; and the Classification C, the balance. These percentages are arbitrary. The idea here is to align inventory management, customer service policies, and cost controls with the value of the product or customer. The other way of looking at it is to pay the most attention to high revenue generating products and customers, and less to others. Some companies use the 80%/20% rule, where 80% of the sales come from 20% of products or customers—this is usually the case.