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Where does product mix fit within a profitability framework?
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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
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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.
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Hi, it does not fit in this framework, since it impacts price, volumes, and variable costs
Best,
Antonello
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