What is sales mix? Definition, formula, and best practices

Efficient inventory management helps prevent stockouts and overstocking, which can affect your sales mix and overall performance. When the company realizes that a specific product is not getting enough profits, they can always ask for suggestions from the customers. Customer feedback, together with research and market intelligence team, can revamp the product and get it working in the market. Sales mix is a metric which can be done by calculating the proportion of every product that a business sells in its product portfolio along with the total sales volume. As you can see, management must decide whether to create a sales mix that is heavy in high cost products or heavy in low cost products.

How to calculate sales mix

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. Learn how to create a data flow diagram to visualize your business processes with real-world examples, templates and tips. Business owners and sales managers can use a CRM system like Pipedrive to track the number of deals on this journey. The break-even point is a major inflection point in every business and sales organization. Read our ultimate guide on white space analysis, its benefits, and how it can uncover new opportunities for your business today.

Sales mix variance

Companies based on products and services utilize different methods of calculation to calculate sales mix. Simplest of all methods is calculation of profit margin; seller calculates the profit margin of each product and compares it. Formula shows which products have higher profit margins, so sellers could focus on them to increase profits. Sales mix variance explains the difference between the sales mix a company has budgeted for and its actual sales mix.

Budgeted Contribution Margin

For example, if a chocolate bar is unprofitable and has been outselling the other two items over the past month, the company might decide to drop that item from its sales mix. It indicates that the actual mix doesn’t yield profitable results as budgeted. Therefore, management needs to relook the sales mix and the variance for better performance. But keep in mind, this number only refers to the number of units sold, not the impact of the units on revenue.

Incorporating sales mix ratios into financial planning also requires accounting for external factors like market trends and consumer behavior. Regularly updating ratios ensures businesses adapt to changing conditions and sustain profitability. Another way to make informed inventory decisions is to integrate your sales mix data with a state-of-the-art CRM like Zendesk Sell. When you can compare product and pricing statistics against customer purchase histories and preferences, you can make smart choices about where to head next as a company. Percentage shows the percentage a product has in the total sale; the percentage is essential while determining the marketing focus of a product. Project and current mix percentages are two types of percentages utilized to calculate the percentage of commodities sold.

Company

Then, determine the percentage of total sales that each item accounts for over a set period (e.g., one year). Sales Mix variance is the difference between the target and actual mix, expressed as a percentage. To calculate sales mix ratios, businesses need accurate data on units sold and revenue for each product or service. Dividing the sales of each product by the total sales determines its proportion within the overall sales mix.

Promotional campaigns, new product launches, or discontinuation of existing products can also alter the proportion of items sold. Additionally, seasonal demand and economic conditions may influence which products contribute more to total sales. Clothing brands before 2020 had high demand, but following year, after corona pandemic. Demands for products decreased companies prediction power based upon projected sales mix percentages turned out false. Such predictions in businesses have very little importance; however, they show a slight trend of demand for products and services.

• Planning a sales mix is a strategy decision that management must make based on economic and market conditions.
• Several methods are available to check a product’s contribution to companies profit.
• The discrepancy reveals the need for a more detailed analysis, which can be addressed with sales mix variance to better align with sales goals.
• In this example, your company sells speakers, and you want to compare two of your products—a wired speaker that retails for $35 and a Bluetooth speaker that retails for $65.
• Sometimes people aren’t aware of the commodity, but marketing fills that gap and creates a name for brand.

Sales mix is the relative proportion or ratio of a business’s products that are sold. Sales mix is important because a company’s products usually have different degrees of profitability. During this period, the company actually sells 1000 total units, consisting of 700 units of multivitamins and 300 units of protein powder. Through these calculations, we can see that the more multivitamins you sell, the more profitable your sales mix is. It doesn’t mean your company should discontinue selling protein powder, however, it could mean devoting more focus to selling multivitamins could lead to more profit. Several methods are available to check a product’s contribution to companies profit.

• Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.
• For example, the office chairs (with the higher profit margin) result in an unfavorable variance.
• Reports were gathered to show how the company is performing at different levels.

For example, if a store sells both shoes and shirts, the sales mix shows the percentage of total sales each product represents. A strong sales mix means focusing on items with higher profit margins or demand. This variance analysis helps the management understand the reasons for deviation from the budgeted sales mix and reconsider their decisions. In addition, it helps to understand the performance of various products concerning sales and profitability and each product’s contribution to the business. Sales mix variance accounts for the difference between the sales mix a company has budgeted for and its actual sales mix at the end of a certain time period. But if it’s negative, you can also use that information to determine the next steps with your sales team or inventory planning team.

Sales Velocity: What It Is & How to Measure It

That’s a difference of 95 units, or 2 percent in sales mix percentage (14 percent instead of 16 percent). Businesses are operating for only single purpose to gain profits; companies that claim profit-making as second goal are lying. Marketing could actually impact the performance of commodities; marketing is like magic.

Product margin allocation examines how profits from a company’s product portfolio are distributed. Sales mix also has an impact on the total inventory cost incurred, and this cost may change company profit by a significant amount. If, for example, XYZ decides to stock more lawn mowers to meet spring lawn demand, the firm will earn a lower profit margin than It would if it sold hammers and other products. Carrying larger, more expensive products generates higher inventory costs and requires a larger cash investment. Other problems might include a lack of focus from marketing departments. Marketers reduce marketing for products that are sales mix definition selling well; such tactic is utilized to keep costs low.