Sales product Mix Profitability  

Sales cost and profitability management

Sales cost to revenue ratio is one assumptions behind profitability projections. Minimizing the cost of sales while staying within assumptions boundaries is must.


Sales product Mix Profitability


Managing sales product mix helps to enhance the sales profitability, as sales people can aim at placing a greater focus on more profitable products.

Managing sales product mix helps to enhance the sales profitability, as sales people can aim at placing a greater focus on more profitable products.

Typically the management team decides upon the product mix on the basis of many factors (profitability, risk associated with the product, the strategic objectives behind the product, flag-ship product..). This product-mix then get translated into the sales targets for sales units, who frame their own methods to encourage the sales in line with the product-mix. It is possible that the product-mix targets do not aim for maximum profitability OR revenue. For the sake of simplicity, we assume that the product mix is aimed at maximizing sales profitability.

The product-mix targets typically are not hard and fast. They define the 'minimum %age' of a product in the overall sales volume OR sales value. Sometimes the product mix can be in the form of product group mix OR individual product mix. It is obvious that the product-mix targets change depending upon the sales channel.

The success drivers and influencing factors on the sales product mix in context of sales profitability

Sales product mix in line with sales channel

Have higher proportion of low profitability products (which assumingly will be more commodity and lesser margin products) in the indirect and 3rd party distribution, and have higher proportion of higher profitability products in the direct sales channel. Selling low-profitability products through expensive sales channel will be counterintuitive.

Sales product mix in line with the sales leads

If you are allocating the high profitability product leads to a gives sales unit, their targets will be set accordingly.

Sales product mix in line with the sales teams

The sales product mix for profitability is also set depending upon the training, tenure and compensation for the sales staff. More experience staff draws higher salaries and also have a greater level of training investment into them. Irrespective of the salaries, higher profitability products (and assumingly more specialized and complex products) are allocated more to relatively better & experienced sales teams.

Measures related to sales product mix for sales profitability

  • Sales value
  • Sales volume
  • Cost of Goods Sold
  • Direct Sales Cost
  • Indirect Sales Cost
  • Sales margin post deducting cost of good sold(COGS)
  • Sales margin post deducting COGS and direct sales cost.
  • Sales margin post deducting COGS, Direct Sales Cost and Indirect Sales Cost.
  • Sales profit

Metrics/KPIs related to Sales product mix

  • Actual sales vs. product level sales targets

Dimensions on which you can analyze sales product mix

  • Location
  • Business unit
  • Sales unit
  • Time period
  • Sales channel
  • Ticket-Size slab