Mix-effect is used to measure the impact in the sales amount resulting from a change in the mix of quantities sold. With mix-effect, even by keeping the total quantities and prices the same, sales can increase if we sell a higher proportion of expensive products.
It is calculated as the difference between the actual unit and actual unit at budget price multiplied by the budget price.
For example, if we calculate the mix-effect for any product where the actual unit is 30 and the actual unit at a budget price is 15, then:
Mix effect on quantities= 30-15= 15 units.
Mix effect= Mix effect on quantities x budget price = 15 x 100 = 1500 EUR
Price Volume Mix analysis has the following three components
- Price Impact(applying higher or lower selling prices per unit)= Target Volume * (Actual price - Target price)
- Volume Impact(variation in the number of units sold)= Target Price * (Actual volume - Target volume)
- Mix Impact(change in the mix of quantities sold)= (Actual volume - Target volume) * (Actual price - Target price)
Why measure the mix effect?
- Diagnostic purpose: Mix effect and price can explain changes in margin and sales.
- Performance management: If new products or investing in marketing is supposed to improve the mix, then these KPIs can be used to evaluate performance and set the target in advance.
Benefits of PVM analysis
- Standardizing your Price-Volume-Mix assessment- Tracking the reason for cost increments can be difficult, yet distinguishing causality is critical for your association's drawn-out development. PVM is proposed to assist you with recognising and convey the changes to your C-suite associates by empowering you to bore down into the subtleties. In businesses where unstable costs make anticipating profitability harder, you may incorporate a cost bucket and make your PVM assessment on a margin basis.
- Bridge-building benefits: By identifying and distinguishing the impact of pricing on your revenue or margin, and then filtering this data by relevant business parameters, you can quantify the adequacy — and inadequacies — of your pricing activities and strategies. The data you get from the analysis can help you to improve your pricing practices and ensure that you are implementing them to get the maximum profit.