Where does product mix fit within a profitability framework?

Question

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Answer 1

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

Answer 2

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.

Answer 3

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

Best,
Antonello

Answer 4

Hi, here some tips and tricks as well as explanations of what the interviewer expects: 1. General Approach to Struc... (read entire answer)

Hi, here some tips and tricks as well as explanations of what the interviewer expects: 1. General Approach to Structuring a Problem Instead of relying on rigid structures, I e... (read entire answer)

Answer 5

Hi there, and thanks for asking, Indeed, setting up the framework for a profitability case can be a bit confusing, ho... (read entire answer)

Hi there, and thanks for asking, Indeed, setting up the framework for a profitability case can be a bit confusing, however, I would advise you not to think of “THE” framework wh... (read entire answer)