The sales mix is a calculation that aims to determine the variety of products and the proportion a company sells at a specific time. It refers to the proportion of products that a business sells. This calculation reflects the percentage of a product sold in relation to the company’s overall sales. For instance, if a company sells 100 units of goods in a day, 80 of those goods might be product A, and the remaining 20 might be split between product B and C. As different products typically have varying levels of profitability, it is now the responsibility of a company’s management to decrease or stop selling low-profitable products and increase sales of highly profitable ones.
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How to calculate sales mix
Use the sales mix formula:
Actual unit sales times (Actual sales mix percentage minus planned sales mix percentage) times anticipated contribution margin per unit equals sales mix variance.
You must perform some fundamental sales mix accounting in order to determine your optimal strategy:
For instance, you might charge $10 for T-shirts and $20 for sweaters in your clothing line. The cost of materials may be $2 and $10, respectively. Your sales mix calculator would look like this:
T-shirts have a lower sale price, but they have a much higher profit margin. Therefore, if T-shirts start to represent a larger portion of your sales mix, you may be able to turn a larger profit than you would be able to if you sold more sweaters.
What is sales mix?
The ratio of the various goods and services your business offers is referred to as your sales mix. It displays each product sold along with the profit margin it produces. After all, each good or service that your company offers probably has a distinct price point and profit margin. Even when sales numbers are stable, changing your company’s mix can drastically alter the net profit you receive.
You can determine the merchandise that generates the highest profit for your business by conducting a sales mix analysis. Then you can decide which goods or services demand your team’s attention. You might decide to allocate more resources to research and development (R&D), create a high-impact marketing campaign to promote it, or assign a larger customer service team to support it if one service generates significantly more profit than the others. Your company’s net profits may rise after narrowing your focus and changing your sales mix.
In contrast, your sales mix analysis may also point out low-profit products that use fewer marketing and sales resources overall. You may decide to redirect your marketing or R&D budget to high-profit products in place of promoting low-profit products. Your profits could therefore rise while your expenses stay the same.
Sales mix variance formula
It’s critical to understand the distinction between planned and actual sales mix calculation methods in order to use this concept effectively:
The difference between the anticipated and actual amounts is represented by the sales mix variance. To calculate sales mix variance, use this formula:
For instance, you might want to sell 500 sandwiches and 500 burgers at your pop-up restaurant, for a 50-50 sales mix. However, your sales mix would be 60-40 if you actually sold 1,200 sandwiches and 800 hamburgers. You would need to know the contribution margin per unit, which is the sales price less related costs, in order to calculate the sales mix variance for each item on the menu. The sales mix variance might look as follows:
Sales mix example
Having examples to explain the process will make it simpler for you to comprehend your sales mix percentage. To better understand sales mix and sales mix variance, use the example scenario below.
A low-profit extended play (EP), a mid-profit full-length album, and a high-profit greatest hits compilation might be the plan for a small, newly established record label. The anticipated profit margin per unit for the EP, full-length album, and compilation could be $2, $5, and $8, respectively. Throughout the course of the year, you might aim to sell 100,000 albums overall, including 30,000 extended plays, 50,000 full-length albums, and 20,000 compilations. Your planned sales mix would be 30-50-20.
The actual sales figures and overall profits would differ from what was anticipated if your label sold fewer albums with a different mix. For instance, even though you sold fewer albums than anticipated, your label could still turn a profit if you sold 90,000 albums with an actual sales mix of 20-30-50. The sales mix variance would be:
The overall favorable variance for your record label would be $18,000. You might choose to promote more heavily higher-priced items in the future because selling more greatest hits compilations helped to boost profit despite lower sales figures.
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FAQ
How do you calculate sales mix?
- Estimated unit volume is subtracted from actual unit volume, and the standard contribution margin is multiplied.
- Do the same for each of the products sold.
- Add up all of this data to get the company’s sales mix variance.
What is sales mix in CVP analysis?
Number of actual units sold. A product’s actual sales mix percentage is calculated by dividing its actual sales by the sum of all sales of all products. The percentage of budgeted sales that are made up of different product types is known as the budgeted sales mix.
Why is a sales mix so important?
Sales mix is the percentage of how many products are sold overall. In addition to the assumptions already made for CVP analysis, the following assumptions are made for the calculation of the break-even point for sales mix: The proportion of sales mix must be predetermined. The sales mix cannot alter during the applicable time period.
What expected sales mix?
The ratio or relative proportion of a company’s sold products is known as its sales mix. Because a company’s products typically have varying levels of profitability, the sales mix is crucial. Due to the likelihood that the services provided will have varying levels of profitability, sales mix also applies to service businesses.
