What Is the Sales Mix?

The sales mix is a calculation that determines the proportion of each product a business sells relative to tota🍎l sales. The sales mix is significant because some products or services may be more profitable than others, and if a company's sales mix changes, its profits also change. Managing sales mix is a tool to maximize company profit.

Understanding Sales Mix

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.

Companies analyze the 澳洲幸运5官方开奖结果体彩网:sales mix variance to ensure the sales of a product or product line🌟 are performing correctly. This calculation compares products against total sales.

Factoring in Profit Margin

澳洲幸运5官方开奖结果体彩网:Profit margin is defined as net income divided by sales, and this ratio is a useful tool to compare the relative profitability of two products with different retail sales prices. Assume, for example, XYZ Hardware generates a net income of $15 on a lawnmower that sells for $300 and sells a $10 hammer that produces a $2 profit. The profit margin on the hammer is 20%, or $2 divided by $10 while the mower only generates a 5% profit margin, $15 divided by $300. Profit margin removes the sales price in dollars as a variable and allows the owner to compare products based on profit per sales dollar. If XYZ’s profits are꧙ s💞lowing, the firm may shift the marketing and sales budget to promote the products that offer the highest profit margin.

Target Net Income

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 $200,0🎀00 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 profi🐓t for every dollar sold increases along with net income.

Examples of Inventory Cost Issues

Sales mix also has an impact on the total 澳洲幸运5官方开奖结果体彩网: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. In addition, stocking more lawn mowers requires more warehouse space, a larger cash investment in inventory, and the expense of moving mowers into the store and out to customer vehicles. Carrying larger, more expensive products generates higher inventory costs and requires a larger cash investme🐲nt.