What Is Sales Mix and How Do You Calculate It?

By Indeed Editorial Team

July 23, 2021

When you work in business, it's important to identify the factors that contribute to success. Companies in many industries track sales mix to gain a better understanding of what they sell and how it affects their revenue streams. Calculating your company's sales mix can also help you identify trends and make informed decisions for your business. In this article, we discuss sales mix, provide a standard formula and share some examples to illustrate.

What is sales mix?

Sales mix refers to the ratio of the various products and services your company offers. It reflects each item sold and the profit margin it generates. After all, each product or service your business provides likely has a different price point and a unique profit margin. Changing your company's mix can completely change the net profit you collect, even when sales numbers remain stable.

By doing a sales mix analysis, you can identify the items that earn your company the greatest profit. Then you can pinpoint which products or services deserve your team's focus. If one service generates significantly more profit than the others, you might decide to devote more research and development (R&D) resources, design a high-impact marketing campaign to promote it or assign a larger customer service team to support it. After refining your focus and altering your sales mix, your organization's net profits could increase.

Conversely, your sales mix analysis could also highlight low-profit items that demand a smaller percentage of your marketing and sales resources. Instead of promoting low-profit items, you might shift your marketing or R&D budget to high-profit offerings instead. As a result, your profits could increase while your costs remain the same.

Related: What Is the Net Sales Formula? (And How To Calculate It In Excel)

How to calculate sales mix

Use the sales mix formula:

Sales Mix Variance = (Actual Unit Sales x (Actual Sales Mix Percentage – Planned Sales Mix Percentage) x Planned Contribution Margin Per Unit

To determine your optimal approach, you have to do some basic sales mix accounting:

  • Profit = Sales Price – Cost of Materials

  • Profit Margin = Profit / Sales Price

For example, your clothing line may sell T-shirts for $10 and sweaters for $20. The cost of materials may be $2 and $10, respectively. Your sales mix calculator would look like this:

  • T-shirts have a profit margin of 80%.

  • Sweaters have a profit margin of 50%.

Even though T-shirts have a lower sales price, their profit margin is much higher. That means if T-shirts become a bigger factor in your sales mix, you could generate a larger profit than you could if you sold more sweaters.

Related: How To Calculate Total Revenue

Sales mix variance formula

To use this concept effectively, it's important to know the difference between planned and actual sales mix calculation methods:

  • Planned sales mix: This calculation reflects the ratio of products or services your company intends to sell during a defined time period, such as a quarter or year. Organizations calculate this number in advance and use it for planning purposes. Knowing your planned sales mix is essential for estimating profits, determining operating costs and making capital purchases.

  • Actual sales mix: This mix calculation indicates the ratio of products or services your business sold during a certain time frame. Companies determine this number after the time period ends and use it for reporting purposes. Calculating your actual sales mix is key to understanding your company's profit and honing your business strategy.

Sales mix variance reflects the difference between the planned and actual amounts. To calculate sales mix variance, use this formula:

  • Sales Mix Variance = (Actual Unit Sales x (Actual Sales Mix Percentage – Planned Sales Mix Percentage) x Planned Contribution Margin Per Unit

For example, your pop-up restaurant might plan to sell 500 sandwiches and 500 burgers, for a 50-50 sales mix. However, if you actually sold 1,200 sandwiches and 800 burgers, your sales mix would be 60-40. To calculate your sales mix variance for each menu item, you would need to know the contribution margin per unit, or the sales price minus related costs. The sales mix variance might look as follows:

  • Sandwiches: (1,200 x (60% – 50%) x $5) = $600 positive or favorable variance

  • Burgers: (800 x (40% – 50%) x $6) = $480 negative or unfavorable variance

Related: What Is the Sales Revenue Formula? And How To Use It (With Tips To Increase Revenue)

Sales mix example

Understanding your sales mix percentage is easier when you have examples to illustrate the process. Use the sample scenario below to get a better idea of sales mix and sales mix variance.

If you own a small startup record label, you might plan to launch with three albums: a low-profit extended play (EP), a mid-profit full-length album and a high-profit greatest hits compilation. The planned contribution margin per unit might be $2 for the EP, $5 for the full-length album and $8 for the compilation. You might intend to sell 100,000 albums total throughout the year, including 30,000 EPs, 50,000 full-length albums and 20,000 compilations. Your planned sales mix would be 30-50-20.

If your label sold fewer albums with a different mix, actual sales numbers and total profits would look different than planned. For example, if you sold 90,000 albums with an actual sales mix of 20-30-50, your label could make a reasonable profit even though you sold fewer albums than planned. The sales mix variance would be:

  • EP: (18,000 x (.20 - .30) x $2) = $3,600 unfavorable variance

  • Album: (45,000 x (.50 - .50) x $5) = $0 variance

  • Compilation: (27,000 x (.30 – .20) x $8) = $21,600 favorable variance

Overall, your record label would have a favorable variance of $18,000. Because selling a higher percentage of greatest hits compilations contributed to an increased profit despite lower sales numbers, you might decide to promote higher-priced items more heavily in the future.

Jobs in the finance industry

If you're interested in pursuing a career in the finance industry or business, here's a list of 10 interesting jobs you may consider:

1. Account manager

2. Investment manager

3. Financial analyst

4. Financial advisor

5. Commercial loan officer

6. Budget analyst

7. Venture capitalist

8. Insurance sales representative

9. Bank teller

10. Financial planner

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