Profitability case: should Mix Effect be an individual bucket?

improving profitability
New answer on Oct 11, 2021
2 Answers
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Anonymous A asked on Oct 11, 2021

In the initial diagnosis of a profit problem, we usually start from two main buckets: revenue and cost. Some experts advice putting “mix effect” as an additional bucket, while some suggest discussing “mix effect” within the cost bucket (i.e. segments with higher cost relative to revenue has increased). However, the mix effect could also be discussed within “revenue” bucket (i.e. segments with higher revenue relative to cost has reduced). 

Could you share your opinion on (1) which approach is better and more logical? (2) If the second approach is suggested, should I discuss the mix effect within the revenue or cost bucket?

Thank you!

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Ian
Expert
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replied on Oct 11, 2021
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

First of all, your initial premise “we usually start from two main buckets: revenue and cost” is wrong!

Every profitability case needs to be treated differently. Any combination of market, product, customer, competition, internal, external, revenue, cost, etc. should be considered and used based on the case on hand!

You need to fundamentally rethink how you approach profitability! Then, you'll realize “mix effect” would actually just be incorporated in any new framework you have (perhaps in Product or Competition, depending on the case)

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Antonello
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replied on Oct 11, 2021
McKinsey | NASA | top 10 FT MBA professor for consulting interviews | 6+ years of coaching

Hi!

I think it really depends on the specific case!

One way to go about it is to state that you also want to dig deeper into mixed effects and then focus on a specific type (i.e. revenue or cost) once you found its relevance in the case.

Hope this helps.

Best,

Anto

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Ian gave the best answer

Ian

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