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What is Price Volume Mix? A Complete Guide

Price Volume Mix Analysis (PVM) is a method that helps figure out how changes in pricing, the amount sold, and the variety of products affect a business's revenue or profit over time. It breaks down these factors to show how they impact financial results, helping companies make smarter and profitable decisions.

BUSINESS CHALLENGES WITHOUT PRICE VOLUME MIX

What is your Current Position in Implementing a Price Volume Mix?

Let's help you understand your current situation by asking some simple-yet-revealing questions. If you find yourself uncertain about the answers, it's an indication that there's potential for enhancement in your existing setup.

  • Are you fully aware of your customers' reactions to adjustments in pricing?

  • Do you comprehend how your customers or markets react in terms of quantity? In other words, how do specific customer groups react to various pricing strategies, such as volume discounts or tiered pricing, when matched with different product types?

  • Can you identify the relationship between your promotional activities, price increases, and overall profit margins?

This approach aims to keep the tone both helpful and neutral, focusing on introspective questions that highlight areas for potential improvement.

Also Read: Product Bundling Pricing: Boosting Sales and Margin with Strategic Packaging

DEFINE PRICE VOLUME MIX

What is Price Volume Mix?

Price Volume Mix

Price Volume Mix Analysis is a method that helps figure out how changes in pricing, the amount sold, and the variety of products affect a business's revenue or profit over time. It breaks down these factors to show how they impact financial results, helping companies make smarter and profitable decisions.

It’s a method that deciphers the impact of various elements—such as adjustments in prices, quantities sold, and the assortment of products on sale—on revenue or profit fluctuations within a specific timeframe.

This analytical approach empowers businesses to thoroughly examine the factors affecting their financial outcomes, enabling them to craft well-informed strategic plans. Here’s a closer look at the key components involved:

1. Price

This aspect looks at how changes in the selling prices of products or services influence revenue or profit. When a company increases a product's price, assuming everything else stays constant, there should be a corresponding rise in revenue. This phenomenon, known as the price effect, quantifies the financial impact of price adjustments.

2. Volume

This factor evaluates the effect on revenue or profit when the number of products or services sold changes. Selling a greater number of units at an unchanged price results in increased revenue. The volume effect specifically focuses on the financial outcomes of variations in sales quantities, separate from price fluctuations.

3. Mix

The "Mix Effect" is about understanding how selling different combinations of products or services can change a company's profit or revenue, even if the total amount sold and the prices stay the same.

Imagine a store sells two kinds of items: high-margin items (which make a lot of profit per sale) and low-margin items (which make less profit per sale). If, over time, the store starts selling more of the high-margin items and fewer of the low-margin items, the "mix" of what they're selling has changed.

This change in the mix can lead to more profit for the store, even if the total number of items sold doesn't increase and the prices of the items don't change. This increase in profit, just from selling a different proportion of high-profit versus low-profit items, is what's referred to as the "Mix Effect."

However, in your retail store, if you have a necessary item with moderate pricing, you can lower the price even more to act as an anchor and attract more customers. These are called Key Value Items Pricing Strategy. Take a look at the KVI pricing in detail to know more about how well it would suit your product and pricing strategy.

Download Whitepaper: The Ultimate Guide to a Perfect Pricing Strategy

REVENUE VARIANCE WITH PRICE VOLUME MIX

Understanding Revenue Variance Tree with Price Volume Mix Analysis

Variance Tree Analysis is a common tool in understanding revenue performance. It illustrates how price changes, volume changes (calculated as the number of customers times the volume per customer), and product mix influence revenue variations over time.

In this analysis, besides tracking the total amount of revenue gained or lost, you can also understand the reason behind the change in revenue. For eg, whether it was the price change, the volume or the mix that generated more revenue or incurred losses.

Variance tree analysis, also known as variance decomposition, breaks down the total variance within a dataset into its key components. This detailed analysis helps you understand the following aspects:

  • Identifying key revenue influencers: You will understand which factors are most significantly affecting your sales, profits, or expenses. Understanding these elements can help pinpoint areas of strength and opportunities for improvement.

  • Prioritise focus strategically: Knowing how each component contributes to revenue variance enables businesses to allocate their efforts and resources more effectively, focusing on strategies that promise the greatest impact.

  • Identifying problems and making informed decisions: Highlighting areas where performance deviates from expectations facilitates problem identification and resolution. Moreover, it offers valuable data-driven insights that can inform strategic planning and decision-making processes.

This analytical approach is especially beneficial for businesses with a wide range of products or varying profit margins, allowing leaders to identify areas for strategic adjustments, be it in pricing, product focus, or sales volume optimisation.

Also Read: STP Marketing Model Pricing

APPLYING PRICE VOLUME MIX ACROSS SECTORS

Application of Price Volume Mix in Different Sectors

Here’s how the revenue variance analysis helps businesses in both B2B and B2C sectors.

  • B2B Context: Variance tree analysis helps businesses understand the factors affecting sales across different customer groups, product lines, or regions, guiding efforts towards the most profitable areas and enhancing sales strategies.

  • B2C Scenario: It supports B2C companies in examining market trends, product performance, and consumer behaviour, informing product development, marketing initiatives, and customer experience improvements.

Similar to budget variance analysis, this method breaks down performance indicators into smaller parts for detailed comparison, focusing on actual versus actual performance to assess the quality of set goals and targets, typically comparing this year's performance with the previous year to eliminate the impact of seasonality.

REVENUE VARIANCE ANALYSIS WITH SYMSON

Optimising Revenue with Symson's Price Volume Mix Analysis

Symson provides you with a comprehensive variance tree analysis, an essential tool for understanding the nuances of your financial performance. Here's how it can illuminate different aspects affecting your revenue or profit:

1. Sales Quantity's Role

We look at how selling more or fewer items affects your bottom line. This tells you if shifting unit sales is behind your revenue ups and downs, helping you grasp customer demand and your sales efficiency.

2. Price Adjustments' Impact

This part assesses how tweaking your prices influences your earnings and sales. It’s crucial to see if your pricing hits the mark with customers and market trends, guiding you to smarter pricing moves.

3. Product Mix Shifts

Here, we explore what happens when you adjust the mix of what you’re selling, especially between higher-profit and lower-profit items, or when you focus on selling more of one product over another. It's about finding the sweet spot in your product lineup to boost profits.

Through Symson's comprehensive analysis, businesses can pinpoint the specific drivers of revenue and profit changes, empowering strategic decision-making based on detailed insights into sales quantity, pricing strategies, and product mix effectiveness.

Download Now: Top 10 Smart Pricing Solutions for Sustainable Profitability

Data Requirements for Price Volume Mix Optimisation

To assist you effectively in optimising your Price Volume Mix, we require specific types of data from your end. Here's a detailed look at what we need:

  • Historical Data: A comprehensive collection of your past sales records and financial reports is essential. This data will enable us to analyse trends, identify patterns, and understand the historical context of your business's performance. It serves as the foundation for predicting future outcomes and making informed decisions.

  • Segmentation Data: Detailed information about your market segments is crucial. This includes data on customer demographics, product categories, and sales channels, among others. With this data, we can tailor our analysis to different segments of your business, ensuring that strategies are specifically designed to address the unique characteristics and needs of each segment.

  • External Data: To enrich our analysis and provide a holistic view, we also need data external to your organisation. This may encompass industry trends, economic indicators, competitor information, and other relevant market data. External data helps us to place your business within the wider market context, highlighting opportunities for growth and potential challenges.

This method provides a thorough, user-friendly, and understandable insight into the benefits of variance tree analysis for your company.

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

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HAVE A QUESTION?

Frequently Asked
Questions

What is revenue variance analysis?

Revenue variance analysis is a technique used to compare expected revenue against actual figures, pinpointing deviations. This analysis considers the Price, Volume, and Mix effects to identify how changes in selling prices, quantities sold, and the composition of sold products respectively contribute to revenue fluctuations.

Why is Price Volume Mix important?

Price Volume Mix is crucial because it helps businesses understand how pricing decisions, sales volume, and the mix of products sold influence their overall revenue and profitability.

How to Price Volume Mix improve Financial Performance Analysis?

Incorporating Price Volume Mix into Financial Performance Analysis provides a deeper understanding of how changes in pricing, sales volume, and product mix impact financial health, enabling more strategic business decisions.

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