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Where does product mix fit within a profitability framework?

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Ian
Coach
on Aug 03, 2021
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

It doesn't fit under this type of profitability framework. This is the “simple” profitability framework layout (Revenue and Cost).

The more advanced one is contribution margin!

It's a big trickier to understand, but it essentially has A) Fixed Costs and B) Contribution margin

Contribution margin is split into Product Contribution (i.e. product profits) which is split into Volume and margin. Margin is made up of price and unit costs (variable costs).

Feel free to shoot me a message if you're having trouble understanding…I have a visual that may help

Agrim
Coach
on Aug 05, 2021
Top Awarded Coach | BCG Dubai Project Leader | Master Casing in only 3 Hours | 10y in Consulting | Free Intro Call

The approach you are suggesting is not exactly correct.

Product mix is almost like a separate dimension and not just a direct parameter like volume and price.

  • Your volume could be reducing while your product mix remains the same - and the revenue could go up/down/same - anything
  • Your volume could stay the same while your product mix changes - and the revenue could go up/down/same - anything
  • Your effective price would be affected by the product mix
  • Your effective margins would be affected by the product mix

If you can provide more context on the particular case where you got this idea from - I would be happy to provide specific guidance.

on Aug 04, 2021
McKinsey | NASA | top 10 FT MBA professor for consulting interviews | 6+ years of coaching

Hi, it does not fit in this framework, since it impacts price, volumes, and variable costs

Best,
Antonello

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