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.
Example of Sales Mix
Let’s assume that an automobile company plans to sell 100,000 units in the current year. The planned sales mix is 20,000 units of very-low-profit models + 50,000 units of medium-profit models + 30,000 units of very-high-profit models. In other words, the planned sales mix is 20%, 50%, 30%. With this volume and sales mix the company is planning to have a small operating loss.
Now let’s assume that the total units actually sold were only 95,000 units. Having 5,000 fewer units sold could mean a huge operating loss. However, the company’s loss (or profit) depends on the actual sales mix. What if the actual sales indicates that 15% of 95,000 units sold were the very-low-profit units, 45% of the sales were the medium-profit units were sold, and 40% of the sales were the very-high-profit units. In other words, this more favorable sales mix (15-45-40 instead of 20-50-30) could result in an operating profit (instead of the planned loss) even with 5,000 fewer units sold.
