Maximizing Profit by
Mastering Volume, Rate and Mix
Eduardo Gamboa
VP Latin America
Salient Management Company
Remember this ?
95% of
sales and
finance
reports
don’t reveal
WHY things
happen.
AGENDA
1. Know the WHY’s of your business.
2. Identify key correlations between Mix, Rate and
Volume to measure past performance and trends.
3. Use bubble and delta charts to identify mix shift and
prevent future marginal erosion.
4. Create a multi-view dashboard with dynamic
collections to track total company performance.
3
1. So where are the WHY’S and how many different ways can we
influence profit in a any situation ?
Basically we can
bring them down
to 3…
PROFITS
GROWTH
1.
VOLUME INITIATIVES (Sales and Distribution tactics)
2. RATE (PRICE, COGS, DISCOUNTS, ALLOWANCES, REBATES, COMISION)
3. MIX (Mix shift management by sector or category)
4
By combining long and short term adjustments we are able to
improve overall profit expectations.
Short Term
Long Term
Our starting point will be a bottom up approach to
measure MC performance
5
Keep in mind that Pricing is the most powerful lever to continue
driving profitable growth
1% improvement in
Creates operating profit
improvement of
Price
11.15%
Variable Costs
7.8%
Volume
3.3%
Fix Cost
2.3%
* Based on average economics of 2463 companies in Compustar aggregate.
From Harvard Business Review 2005
Page 6
2. Our first step will be to perform a HEALTH CHECK in
our Profit Muscle Capability
One simple way to do this, is to build a Bubble Chart to
identify 4 distinctive quadrants or sectors of MC
performance.
Margin Reduction
Margin Increase
Profit
Y
MC (DIFF)
X
Non Profit
Select X: Margin
Select Y: % Margin
Bubble: Margin
MC % (DIFF)
8
Each quadrant tells a different story in how profit
is made… and lost !
Margin Reduction
Q1
Margin Increase
Margin EROSION
Profit growth
with MC contraction
Q2
Sustainable
Profitable
Growth
Q3
Q4
Profit Erosion
Volume Erosion
Profit
MC (DIFF)
MC is contracting
MC is increasing
MC % (DIFF)
Non Profit
Lest see how it works ?
Example: Beverage Data Set
Step 1: Build a classic bubble chart and select your key
customer* dimension (Ex Channel), identify quadrant position.
26% MIX
Regional
Chains
+4.6% Profits
-10% Mgn
* Customer for DSD
Q1
Conv
with
Gas
Other
Groceries
Bring previous year to compare performance.
Prior Year
Current
Regional Chains
Regional
Chains
Conv With
Gas
Other
Groceries
Any significant change in rate will most likely signal a mix shift.
Step 2: Use a bar chart to confirm volume, margin and rate
results. Check variance proportion.
Regional Chains is now in Q1,
which means its overall MC
has contracted, and will require
increased volume to keep up
with the profit contribution of
prior year.
Find Your Why’s ?
 Discounts are eroding MC by 10.3 %
 Volume is up by 17%, but is not enough to sustain previous profit level
 This channel has lost more than 26% of its ability to make money.
Step 3: Use a Delta Chart combination with Vol-Rev-Margin
to detect mix shift.
-
+
A horizontal
(left or right)
shift in the
bubble, will
indicate a
product mix
change.
12 PK
12 PK
20 OZ
20 OZ
-
Compare Size of its MIX composition to measure impact
+
Step 3: Finally confirm volume and rate priorities for mix
management.
CONCLUSION:
 VOLUME INITIATIVES IN 12OZ
ARE ONLY GOING TO INCREASE MC
EROSION AND RISK.
 20OZ WHICH HAS ALMOST
DOUBLE MC% IS ONLY GETTING A
FRACTION OF TRADE SPEND
RESOURCES.
Ladder Charts are great to
measure MC composition
 MIX MANAGEMENT PRIORITIES:
1. 12 OZ MAX RATE
2. 20 OZ MAX VOLUME
3. Measuring Total Company Impact
Build a Multi-View Dashboard to track relevant changes
We should start with the most granular level of customer or
product composition.
Margin Reduction
Margin Increase
Profit
MC (DIFF)
Most granular level:
“Customer Name”
Select X: Margin
Select Y: % Margin
Bubble: Margin
Non Profit
MC % (DIFF)
18
Then, we will use dynamic collections to create a filter or test
criteria to cluster customers that meet our quadrant rules
Total Customers with:
62 % of win
Number of customers
that had both volume
and rate growth vs.
previous period.
- Margin Diff
90% of losses
Margin %
Diff
19
We can test different time frames
to review sales campaigns,
promotions and trade spend
practices.
T1
So is easy to compare results
over time.
T2
More customers meet the criteria
therefore increasing margin
results in Quadrant One
20
How are the quadrants changing in your organization ?
MC
Erosion
Profit
Erosion
Desired
Outcome
Volume Erosion
It will suggest the driving force behind building or eroding
sustainable profitable growth.
21
Create a Multi-view Screen with your most relevant customer dimensions so you
can track changes on a regular basis.
Recommendations
1. Get Dynamic Collections with MM 5.5
2. Use Bubble charts to detect relevant category
or segment movement.
–
–
Horizontal Move will indicate mix shift
Vertical Move will signal a volume initiative
3. Drill down to root cause, use delta and ladder
charts to align mix priorities.
4. Create a multi-view dashboard of your key
dimensions to follow up and protect your
margins.
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MIX MANAGEMENT
PANEL Q&A