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 are likely to vary in their profitability.
To illustrate 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 the low-profit models + 50,000 units of the medium-profit models + 30,000 units of the high-profit models. In other words, the planned sales mix is 20%, 50%, 30%.
Next, lets assume that the total units actually sold amounted to 95,000 units (which is 5,000 fewer units than planned). This could be a problem for the company attaining its planned earnings. However, it depends on the actual sales mix. What if the actual sales mix is 15%, 45%, 40%? This actual sales mix shows a smaller proportion of low-profit and medium-profit units being sold and a larger proportion of high-profit units being sold. In other words, this improved sales mix could mean greater earnings even though 5,000 fewer units were sold.
Sales mix also applies to service businesses since the services provided are likely to vary in their profitability.
