The right product depends on a variety of different factors.
Sales is one of the most important components of any business model. It is the way in which companies generate revenue. A critical consideration for optimal sales is optimal product mix. Product mix refers to the products and service levels a business sells. Since most businesses are in business to make a profit, the primary driver of product mix is profitability. Another consideration is market share, which is driven by volume. Different industries may also be driven by industry regulation or new product development.
Instructions
1. Identify the products with the most favorable cash flows and profitability. The best way to measure this is with gross margin, which is product sales minus the cost of goods sold (including direct labor). Divide gross profit by sales for the gross profit margin, which can be used as a percentage to compare products against each other. Make these products at least 60 to 70 percent of your product mix.
2. Identify the products that have the highest volume. Make these at least 15 percent of your product mix. While these may not be your most profitable products, they may increase the number of customers you have shopping with your business who will purchase your more profitable products in the future.
3. Include new products as a small percentage of your product mix. Analyze current demand trends. New products help to bring in new customers and keep the current customers even if they're priced higher than older products.
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