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At present, the need to access the data have been transformed into digital data, and its use has been growing very rapidly. This transformation is due to the use of the Internet is growing very rapidly, and also the development of mobile devices are growing massively. People tend to store a lot of files in their storage and transfer files from one media to another media. When approaching the limit of storage media, the fewer files that can be stored. A compression technique is required to reduce the size of a file. The dictionary coding technique is one of the lossless compression techniques, LZW is an algorithm for applying coding dictionary compression techniques. In the LZW algorithm, the process of forming a dictionary uses a future based dictionary and encoding process using the Fixed Length Code. It allows the encoding process to produce a sequence that is still quite long. This study will modify the process of forming a dictionary and use Variable Length Code, to optimize the compression ratio. Based on the test using the data used in this study, the average compression ratio for LZW algorithm is 42,85%, and our proposed algorithm is 38,35%. It proves that the modification of the formation of the dictionary we proposed has not been able to improve the compression ratio of the LZW algorithm.