Retail Dogma

# Sales Mix

## What is Sales Mix?

Sales mix is the contribution of sales from different products or categories to the company’s total sales.

This report is used by businesses that sell multiple product lines or categories to assess business performance and plan for future budgets.

## Sales Mix Example

For example, in this 2021 Home Depot annual report, the company breaks down its total revenue by merchandising department to show its sales mix.

When you analyze this report you can see that Appliances contributed 9.4% to the total revenue of Home Depot in 2021, and Building Materials contributed 6.5%, and so on. The total of all departments at the end of the report will add up to 100%.

You can also see the trend of the Appliances department in terms of sales, as well as its contribution to the business. For example in 2019 it generated \$9.85 billion and contributed 8.9% to total sales, while in 2021 this figure has grown to \$14.2 billion and a 9.4% contribution.

You can also see that the top contributor to Home Depot’s revenue in all the 3 years was Indoor Garden, which contributed 10.3% to total sales in 2021.

This might be different from the biggest contributor in terms of gross profit, because the highest selling categories might have lower gross margins. So another report that includes margin contribution can show us which department generates the most gross profit for the business.

Another insight that we can get out of this report, is that there is no one merchandise department that dominates the sales of Home Depot, far ahead from the others; i.e there is no department that contributes, for example, 50% or 60% to total revenue, which is the case with many other businesses.

So this one report has given us a lot of information, which can be used to analyze the performance of the business.

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## How to Calculate Sales Mix?

To calculate the sales mix ratio of each product or category, you divide the sales of this product or category by the total revenue of the business and multiply by 100 to get the percentage.

### Example

Company ABC sells apparel, footwear and accessories.

In 2022 it generated total sales of \$10,000,000, out of which \$6,000,000 came from apparel sales, \$3,000,000 came from footwear and \$1,000,000 came from accessories.

To calculate the contribution of each department to the sales mix we will use the following formula

Sales contribution = department sales ÷ total sales x 100

Apparel Contribution = \$6,000,000 ÷ 10,000,000 x 100 = 60%

Footwear Contribution = \$3,000,000 ÷ \$10,000,000 x 100 = 30%

Accessories Contribution = \$1,000,000 ÷ \$10,000,000 x 100 = 10%

So in this example, the sales mix of Company ABC constitutes of 60% apparel, 30% footwear and 10% accessories.

## How Is This Report Used?

The sales mix report is important, because it’s used by different departments in the business to make decisions. In particular, it is useful while creating the store layout plans, planning the open to buy budgets, planning the product assortments, and reporting and analyzing the financial performance of the business to see how each category is contributing in sales and profitability.

It’s also tracked over time to see the trends of each category, and spot opportunities to introduce new products or categories to the business and improve performance.

Furthermore, the same report can be generated at store-level, to align the products allocated to each store to the revenue contribution of those products. This is because different stores have different customer profiles and regional trends, that affect which products get sold and in what quantities.

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