This document discusses sales mix, which is the relative proportion of different products or services sold by a company. Sales mix is important because products have different costs, selling prices, and profit margins. The sales mix strategy determines the optimal balance of products to maximize overall profits. An example shows how analyzing the sales mix of hamburgers and cupcakes at a cafe can reveal which items have higher margins and should be emphasized. Managing the sales mix is a strategic decision that can help businesses meet profitability targets.

1. SALES MIX :
the key to profit improvement
BY Varsha Kumari Singh
Rajiv Academy For Technology And Management ,Mathura

2. WHAT IS SALES MIX ?
▪ A sales mix is variety of product sold by a company
▪ A relative proportion in which company products are sold.
▪ Based on the promise that different product have different
selling prices, cost structure, and contribution margin.
▪ A company’s sales mix can also be considered the ratio for
each product compared with overall sales volume of all
product.

3. DEFINITION OF SALES MIX
▪ “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. Sales mix also applies to service businesses
since the services provided will likely have different levels
of profitability.”
PRODUCT A PRODUCT B
UNITS 2000 6000
SALES 10000 60000
EXPENSES 6000 25000
PROFIT 4000 35000

4. EXAMPLE OF SALES MIX
▪ A automobile company plan to sell 1,00,000 units .
The planned sales mix
In other words planned sales mix :-
20%
50%
30%
20,ooo units
(very low profit models )
50,000
(medium profit models )
30,000
(very high profit models)

5. SALES MIX FORMULA
▪ To analyse the sales mix ,you must understand the cost and
contribution of each item . For instance, you need to know
how much it costs to create a _________ ,and compared
that to the sales price of your _________ .
SALES PRICE – COST OF
MATERIAL = PROFIT
PROFIT /SALES PRICE *100 =
PROFIT MARGIN

6. APPLYING SALE MIX FORMULA
A café is dealing with two items as follows:-
▪ HAMBURGER
sales price = $6
cost of material =$4
▪ cupcake
sales price =$5
cost of material =$1

7. APPLYING SALES MIX FORMULA
▪ HAMBURGER
Sales price – cost = Profit
$6 - $4 = $2
Profit /sales price*100= Profit margin
$2 / $6 *100 = 33.3%
Profit Margin less than 50%
By analyzing your hamburgers, you see the profit
margin is less than 50%, the profit margin for the sales
mix of all items sold. Therefore, you are making less
from the hamburgers than from other items.
▪ cupcake
Sales price – cost = Profit
$5 - $1 = $4
Profit /sales price *100= Profit margin
$4 / $5 *100 = 80%
Profit margin more than 50%
Donuts are above the 50% profit margin
you are earning on all of your items
combined .

8. CHARACTERSTICS OF SALES MIX
A STRATEGIC DECISION
As you can see ,management must decide whether to create a
sales mix that is heavy in high cost product or heavy in low
cost product . Planning a sales mix is a strategy decision that
management must make based on economic and market
conditions.
Understanding how each item you sell affects your business
can make a big difference in how you make business
decision.

9. ▪ 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 $200,000 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.