Price / Volume / Mix
Explain a revenue change through price, volume and product mix. Build a numerical bridge with consistent units and reconcile it to the total.
- Rate: price per unit
- Volume: number of units
- Mix: which units
Watch out: Mix hides inside averages: the average price can fall without any price cut.
On a case
A carmaker's revenue fell even though it raised prices.
- Rate: prices up 3%
- Volume: units down 2%
- Mix: buyers moved from SUVs to hatchbacks
Illustrative case. Figures and conditions below are assumptions for practice, not market data.
Use a consistent bridge order: volume first at last year's average price, then mix at last year's model prices, then price at this year's model mix. Last year, assume 100 cars: 50 hatchbacks at Rs 5 lakh and 50 SUVs at Rs 10 lakh. Revenue is Rs 750 lakh.
This year, 98 cars sell: 60 hatchbacks and 38 SUVs. Applying the old average price to 98 cars gives Rs 735 lakh, a volume effect of minus Rs 15 lakh. Applying old model prices to the new mix gives Rs 680 lakh, a mix effect of minus Rs 55 lakh.
Raise both model prices by 3 percent: revenue becomes Rs 700.4 lakh, a price effect of plus Rs 20.4 lakh. The bridge reconciles: 750 - 15 - 55 + 20.4 = 700.4. Other decomposition orders allocate interactions differently; state the convention before comparing results.
Sources and further reading
- OpenStax: contribution margin
Explains how sales, variable costs and fixed costs connect through contribution margin.