In most cases, in Germany at least, customers are categorized as A, B or C customers based on the volume of business. At first, this appears logical but at a closer look more factors should be regarded:
- business volume in relation to the customers total budget
- the customers growth plan
- marketing prestige
Just looking at achieved business volume is a very one sided view of a customer. More important is the size of the customers budget, assuming that there is no reason why you should not expand your share. Some customers will clearly grow rapidly and these need to be handled with particular care since this is a chance to establish contacts and loyalties which will keep competitors out when the company grows and more people are involved in purchase and development decisions. Some companies have a lighthouse function in their industry which makes them a generator for new business if they can be referenced.
Basically, there is nothing wrong with an ABC analysis, but the process for the classification needs to be well and clearly defined and classifications should be reviewed at least annually.
The main argument against the ABC classification, is that C customers tend to be ignored. This would lead to problems, since the rule that 20% of customers create 80% of revenue will always apply. Cutting away the C customers will only reduce revenue – it will not change the 20:80 relation!