For all businesses, especially smaller and growing ones, it is important to understand how the items and services that are sold, translate into profits. A big part of this is your sales mix, and knowing what to sell, when, and to who, in order for you to achieve the highest profits.
What Is Sales Mix and Why Is It So Important?
Sales mix refers to the different types of products, services, and categories you sell, and the ratio of those volumes to your total sales. Each will vary in profitability, thus impacting your overall bottom-line. As a business owner, it’s critical to breakdown your costs, to get a better understanding of your margins. Collecting this information will let you know what your most and least profitable items, services, or categories are. You also want to account for your major expenses, which will impact your net profit. And don’t forget about your time which is the most valuable resource in a growing business!
Here’s An Example…
Imagine that you own a candy store that makes a 75% margin on chocolates, but only 40% on jelly beans. That means for every $10 of chocolates you sell, your gross margin is $7.50 and for every $10 of jelly beans you sell, your gross margin is $4.00. Therefore, the more chocolates you sell, the more profitable the sales mix. Of course, you don’t want to stop selling jelly beans altogether, but you do want to focus your efforts on increasing the amount of chocolate you sell.
You don’t always have to increase sales to increase profits. You can increase your profits by simply generating better sales and shifting some of your business to more profitable areas. It all starts with understanding your margins, your costs, and focusing your efforts in the right places to drive a profitable sales mix.
Questions to Ask Yourself
There are a number of things to ask yourself when it comes to analyzing your sales mix can increase profits. A few questions to consider include…
- Do you know your margins for all of the products or services you are offering?
- What is the profit rate of your most and least profitable item, service, or segment of your business?
- Which item or service do you sell in the greatest volume?
- Are your sales and marketing efforts focused on generating a profitable sales mix or could you be doing better?
- What additional product or services can you add to create a better mix?
- Are there any costs you can eliminate to create better margins?
Actions You Can Take
Before you try to improve your sales mix, you must first understand where you are today. Note that product-based businesses have cost of goods sold and expenses, while service-based businesses generally only have expenses.
There are a number of things you can do to improve your sales mix. A few actions to generate a greater profit include:
- Suggesting a high-margin add-on item with each transaction
- Adjusting your email marketing offers and product focus to align with your desired sales mix
- Evolving the service structure that you currently offer your clients
- Launching a new product or service that generates higher margins than current offerings, thus shifting your sales mix
Keep in mind that it is OK to have loss leaders and low margin items in your business. These items can help attract more customers and increase your overall sales volume. If you have a good understanding of your sales mix, margin impacts, and plan your strategies and efforts accordingly, you will be able to generate the highest profits possible.
Let us help you learn more about how improving your sales mix can increase profits! Contact us today for more information!