Sales mix: how to raise profit without selling more
Two stores with the same sales can have very different profits. The difference is usually the sales mix: the share of each product in what is sold. Products with a high contribution margin pay fixed costs faster; low-margin products add sales but little profit.
Contribution margin by product
Contribution margin = price − variable cost − taxes, commissions and fees on the price
Divided by the price, it gives the margin %. The average margin of the business is the sum of all product margins divided by total sales, so it changes whenever the mix changes.
Example
| Product | Sales | Margin % | Margin |
|---|---|---|---|
| A | $10,000 | 50% | $5,000 |
| B | $10,000 | 20% | $2,000 |
| Total | $20,000 | 35% | $7,000 |
Moving $2,000 of sales from B to A, with the same $20,000 total, raises the margin to $7,600: $600 more profit a month without selling more.
How to shift the mix
Give high-margin products the best shelf or page position, build bundles that pair them with best-sellers, pay higher commissions on them and train the team to suggest them. Low-margin products can still be useful to attract customers, but watch that they do not take over.