How to Optimize Your Sales Mix to Improve Profit Every Year
Here’s a good way to leave money on the table:
Keep the same products and services at the same prices, for years.
The scary thing is how many businesses actually do this when there’s a better way. Monitoring your sales mix on a regular basis will give you a valuable tool that can assist you in eliminating underperforming products while enhancing the winners.
The sales mix helps you analyze what your customers like and dislike about your product offering, tells you what products are selling, at what prices, and provides valuable data for future product decisions.
In this post we’ll explore:
- What is a sales mix?
- How to analyze your sales mix
- How to optimize your sales mix
What is a Sales Mix?
A sales mix is simply a record of sales per product or service that shows how the items in each category relate to one another. To illustrate, here is an example sales mix for a five product ice-cream parlor:
- Vanilla: 80 transactions at $4 for $320 sales
- Salted Caramel: 100 transactions at $5 for $500 sales
- Oreo Cookie: 120 transactions at $6 for $720 sales
- Lemon Gelato: 20 transactions at $3 for $60 sales
- Orange Gelato: 10 transactions at $4 for $40 sales
Most Point-of-Sale (POS) systems or online dashboards can generate this information in as much detail as you want.
How to Analyze Your Sales Mix
This might look simple, and it is, but it is also immensely powerful. For example, sales mix data provides a business owner, manager or operator with the following information:
Insight #1: Popularity
Sales mix figures will show you the popularity of a product or service as it relates to other selections in its category. In the example above, the ice-cream products sell over 15x more than the gelato products. This tells the owner that (at least in this period) customers prefer ice-cream products and that they should explore extending this range, and perhaps discontinue gelatos.
Insight #2: Price Points
Sales mix data helps you identify how much customers like to spend on each product and in each category. The sales mix example above shows that sales increase as their price increases. This suggests that customers might not be sensitive to price, and you can potentially increase prices or add more premium products to the menu.
Insight #3: Preferences
The sales mix shows the types of products and services that customers are choosing, in this case fancy ice creams. Trends can be easily discovered and used to create new products and services. The ice-cream parlor could experiment with more complex products including different and unique ingredients.
Insight #4: Planning
The sales mix also provides a way to estimate the sales of individual items based on projected daily sales. For example, let’s say that past record-keeping indicates that 70% of your total ice-cream sales are represented by vanilla based products. Your sales projection for the coming week is $50,000. You can safely project vanilla based ice-cream sales of about $35,000. This is a great help when planning your purchases and scheduling preparation.
How to Optimize Your Sales Mix
Idea 1: Emphasize and extend products and services that are working
Study your top-performing products and services. Not just from a revenue perspective, but look at the ones that generate the best profits. Can you improve these products? Can you increase prices? Are there similar products your customers would like? Are there any add-ons you could include to increase the overall purchase price?
Idea 2: Eliminate products and services that aren’t working
Just as it makes sense to invest more into what’s working, it makes sense to invest less into what isn’t working. Don’t try to brute force a product or distribution channel into working for your business. Use your resources wisely.
Key Takeaway for Small Businesses
Analyzing your sales mix will help you review and cull underperforming products and highlight your best and highest profit products. You can always keep some products aside for important customers or do special edition limited runs that provide an extra marketing opportunity.
One way or another, optimizing your sales mix is a win-win. Reduce lower profit products, and increase higher profit products.
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