Definition: A sales mix is the variety of products sold by a company. A company’s sales mix can also be considered the ratio of sales for each product compared with the overall sales volume of all products.
What Does Sales Mix Mean?
Sales mix is analyzed by management continually because a company’s sales mix directly affects the company’s breakeven point and cost volume profit analysis. This makes sense because businesses generally carry a variety of products in their inventory. Some of these products are low cost items and others are high cost products. Depending on the sales mix or the ratio of low cost products to high cost products carried by the business, the breakeven point might be higher or lower.
For instance, a bicycle retailer might carry five $500 bicycles, two $1,000 bicycles, and one $5,000 bicycle. This is the retailer’s sales or product mix. The company has a smaller investment in the $500 bicycles and will most likely receive a smaller profit on the sale of these bikes. The $5,000 bicycle requires a higher investment and will also return a higher profit percentage than the lower cost bicycles. The breakeven point will be based on the current sales and costs of the bikes.
As you can see, management must decide whether to create a sales mix that is heavy in high cost products or heavy in low cost products. Planning a sales mix is a strategy decision that management must make based on economic and market conditions.