How to do an ABC analysis at your shop and boost profit

Which parts in your inventory actually make a difference to revenue? At many shops, the answer is guesswork, and money ends up tied up in slow movers while the best sellers run out. Knowing how to do an ABC analysis fixes that: the technique ranks items by importance and shows where to focus attention and investment.

What ABC analysis is

Based on the Pareto principle, ABC analysis starts from the idea that a small share of items accounts for most of the value moved. It ranks inventory items by how much each contributes to revenue, so you know which ones deserve tighter control. Here is how item classification works.

Class A

A few items that account for most of the value moved. A common rule of thumb is around 20% of items making up roughly 80% of the value. These tend to be higher-value parts, such as clutch kits, and call for strict control, since any shortage or overstock hits cash flow.

Class B

Items of intermediate importance, with mid-range value and sales volume. They need regular monitoring, but less strictly than class A.

Class C

Most of the items in stock, but with a small share of total value, such as bolts, clamps and small components. They are needed day to day, but can be managed more simply.

Think of your inventory as a movie: class A are the leads, class B the supporting cast and class C the extras. All are needed, but they do not deserve the same attention.

How to do an ABC analysis step by step

• gather the data: list inventory items with unit cost and quantity sold or used over a period, such as the last 12 months
• calculate each item's value: multiply cost by quantity
• sort from highest to lowest value and work out each item's percentage of the total
• add up the percentages cumulatively and set the cut-offs between classes A, B and C
• monitor and review periodically, because item importance changes over time.

With repair shop management software, sales and inventory data are already recorded, making the ABC analysis much easier to build and update.

Why use ABC analysis

• better use of resources: you direct investment to the items that matter most
• more profit: less cash tied up in slow-moving items
• operational efficiency: with key items always available, service is faster
• customer satisfaction: cars do not sit waiting for parts
• loss prevention: tighter control of high-value items reduces misplacement and expired stock
• more strategic decisions: the analysis supports supplier negotiations, pricing and building service packages.

Simplify your management with Onmotor

If you understand how to do an ABC analysis and want to apply it with less effort, see Onmotor's plans for this Brazilian system. It brings together the inventory and sales data the analysis requires. Talk to our sales team.