Sales Mix Variance: Definition, Comparison, Formula, and Example
Companies use sales mix as a tool to maximize profitability and ensure they allocate resources to the right products. In this article, we’ll explain how to calculate, track and improve your sales mix simply and accurately to become more profitable. This company has been doing well, but it is currently experiencing lower net sales and wants to examine its sales mix to pinpoint the problem. Activa decides to compare its two most popular products from the previous year.
For example, you may budget to sell 50% of Product A and 50% of Product B. However, you end up selling 60% of Product A and 40% of Product B. From sales funnel facts to sales email figures, here are the sales statistics that will help you grow leads and close deals. Read our ultimate guide on white space analysis, its benefits, and how it can uncover new opportunities for your business today. Learn how to deal with customer issues, improve satisfaction and build loyalty with these customer complaints response templates and best practices.
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Sales managers have to be aware of sales mix when they devise commission plans for the sales staff, since the intent should be to incentivize them to sell high-profit items. Otherwise, a poorly-constructed commission plan could push the sales staff in the direction of selling the wrong products, which alters the sales mix and results in lower profits. Product A sold 500 units, and that was enough to hit the necessary sales mix percentage.
You can also create a seamless relationship between sales and marketing, thanks to the robust collaboration and communication tools. Calculate your company’s sales mix to strategize your product distribution for the highest revenue gains. In short, your sales mix is the breakdown of what how to depreciate you’re selling as a proportion to the overall value your business has contributed. It’s also important because it can help you identify where your pricing strategy might need revision, and in turn, help you achieve better long-term profitability. It helps managers identify where money is coming from and show what products generate sales. Even though ergonomic chairs have a higher individual contribution margin ($250), the larger volume of modular desks sold (67 units) balances things out.
Sales mix percentage
Now you’ve learned how to find your sales mix, you can use the figures as benchmarks and work to improve them. Business owners and sales managers can use a CRM system like Pipedrive to track the number of deals on this journey. It’s a universal business truth—not every product you offer is going to sell at a high rate at all times.
Sales mix offers clear visibility to the management as to which product gets more profit percentage and which is underperforming. Based on the decisions, the company can decide whether to continue a product in the market or to make any changes in the product to increase its 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.
How to calculate sales mix
The sales team of business think they managed to sell 3700 units of product B and 1300 units of product the last year. To analyze the product-wise sales makes you have to understand the contribution and the cost of every item. For example, you need to look at what is the purchasing cost of the individual books and compare them with the sale price of every book. 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.
As you can see, Product A broke even with a variance of 0 while Product B ended the quarter with an unfavorable variance of -$1,360. Learn how to create a highly effective sales onboarding process in just seven steps and discover what benefits better sales onboarding offers. Learn the key elements of good sales contracts, including best practices for creating contracts to protect your business with clear, enforceable agreements. You can even customize the platform’s email templates to optimize your time to focus on higher-priority tasks, like selling on other platforms.
Definition of Sales Mix
- The sales team of business think they managed to sell 3700 units of product B and 1300 units of product the last year.
- A positive sales mix variance means the actual sales mix of products has led to higher overall profitability than what you budgeted or anticipated.
- You can also adjust your sales, marketing and pricing strategies to account for any disparities.
- Once you have those numbers, you can track your progress toward them using a customer relationship management (CRM) tool.
- To improve your company’s sales mix, you need to understand sales mix variance.
Learn how to use the sales revenue formula so you can gauge your company’s continued viability and forecast more accurately. It lets companies know whether to diversify or stick with what they offer. For example, if one product accounts for a disproportionate share of sales, managers may wish to cut back production of that item to free up more resources for other products. On the other hand, if ice cream sandwiches have stopped selling while chocolate bars and candy canes continue to sell well, selling more of those products may be the best move for business. Calculating these margins also suggests how much budget a business has to cover fixed costs (e.g., salaries) to break even or generate profit.
The sales mix can be used to plan business results and reach a target level of net income. Assume, for example, XYZ wants to earn $20,000 for the month by generating $200,000 in sales and decides to calculate different assumptions for the sales mix to determine the net income figure. As XYZ shifts the product mix toward products with a higher profit margin, the profit for every dollar sold increases along with net income. Based on the budgeted sales mix and actual sales, A’s sales are under expectations by 200 units (1,200 budgeted units – 1,000 sold).
It sounds complicated, but as we’ll see in the next section, the formula is quite simple. It’s keeping tabs on product changes and remembering to do the calculations that can get overwhelming and cause revenue losses. In addition, this method can help managers predict future sales of a given product and its contribution to its bottom how to record a loan payment that includes interest and principal line.
The number of units each product should represent as part of the overall sales mix (typically determined by management). The budgeted Sales Mix percentage can be calculated by dividing the Budgeted Units Sold by the Total Sales. If Product A has a higher profit margin, you’ll have a positive sales mix variance. If Product A has a lower profit margin, you can get a negative (or unfavorable) sales mix variance. In this case, your actual sales mix contributed less to the overall profit you planned for. Once we know each product’s profit margin, we can lay out our metrics to calculate your volume and revenue sales mixes.
Calculating sales mix helps your company determine the ratio of products or services it sells. Companies analyze the sales mix variance to ensure the sales of a product or product line are performing correctly. Analysts and investors use a company’s sales mix to determine the company’s prospects for overall growth and profitability. If profits are flat or declining, the company can de-emphasize or even stop selling a low-profit product and focus on increasing sales of a high-profit product or service. 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.