[EN] How to quickly analyze sales changes with Price-Volume-Mix

We usually compare sales against past periods to see how much they changed, but to understand the "why," we start reviewing order and customer details. There’s a lesser-known technique that helps provide a quick overview of why sales changed, called Price-Volume-Mix analysis.

What is Price-Volume-Mix Analysis?

It's a type of analysis that provides a quick insight into the origin of changes in sales. Typically, when we want to know what happened with sales, we subtract or divide against another period and only look at that result. However, PVM analysis seeks to understand why this change occurred, and as the name suggests, it divides the effects into three areas: Price, Volume, and Mix.

How does the analysis work?

We'll explain how it works below, but if you prefer, you can also watch the video and/or download the example file at the end of this article.

First, we need access to our sales data, ideally at the most granular level possible so we can perform all the calculations we need without problems, such as sales by product at the temporal level we want to examine in detail (for example, month, week, or day).

In this example, we're going to simulate being owners of a fast-food business that sells hamburgers, drinks, and french fries.

Reviewing July's sales, we notice that it increased by about 200 dollars compared to June, but we don't know why. That's why we'll perform the PVM analysis to divide this variation into different origins.

For this, we need to have a table with the total sales by product (it can also be by category or total, although it's better at the most granular level to view it at different levels) and the units per product for each period, just as shown in the following image.

Then we must calculate the variables we'll use for the PVM, doing this for both periods. We calculate the average unit price per product, the units, which is simply repeating the data we have, and the mix, which is basically the units of the product over the total units of the period. Additionally, we calculate the total sum of units sold for each period.

Now let's move on to the Price-Volume-Mix formulas. We'll calculate this for each product separately.

• Price Effect: analyzes how much sales change due to price variations. The formula is based on comparing the price of both periods and multiplying by the current units.

• Volume Effect: analyzes how much sales change due to variations in units sold. The formula is based on comparing a simulation of units sold (Current Total * Previous Mix) against the previous ones and multiplying by the previous price.

• Mix Effect: analyzes how much sales change due to variations in the distribution of units sold, or mix. The formula is based on comparing the current units with a simulation of units sold (Current Total * Previous Mix) and multiplying by the previous price.

While the three previous effects cover the main aspects, there are two specific effects for products that cannot be compared because they have no sales in one of the periods. These two new effects are the "New Product Effect" and the "No Sales Product Effect".

• New Product Effect: relates to products that have no previous sales. The formula is based on current sales. This can occur in cases where we have a new product, or it previously had no stock, or simply wasn't sold.

• No Sales Product Effect: relates to products that had sales in the previous period but now don't. The formula is based on the previous sales but with a negative sign (since it's sales that are "lost"). This can occur because we eliminated the product, ran out of stock, or simply no one bought it.

Now we have the 5 effects that make up the PVM.

To finish, we can sum and compare to ensure we've done the calculations correctly. For this, you can sum all the effects of each product separately and compare with the sales difference (Current Sales - Previous Sales).

Additionally, if you want to see it at the category level or total of your business, you can sum the effects and you'll have a summary by effect, as shown in the image.

The effects will help you understand where the change in sales comes from or what the general cause is when comparing against another period. You can download the test file by clicking here.

At datalemons, we offer this analysis in our free plan, completely automated. For paid plans, we have an improved version proprietary to datalemons where we include more effects, providing much more detail on why your sales varied, as well as recommendations on what to do to increase them in case they have fallen.