Analyzing Your Product Mix to Maximize Your Profits

Home » Blog » Analyzing Your Product Mix to Maximize Your Profits

Problem-449361Today’s marketing managers devote their energies to firming up those “4 P’s” of the marketing mix:  product, price, promotion, and place (distribution). 

Many marketing professionals regard product as the most important “P” of all.  They believe that the most direct path to sales growth is to focus on the customer, ascertain what the person needs or wants, and then offer products (at the right prices) designed to satisfy those needs or wants. 

Effective management of a company’s product/service mix calls for proficiency in areas such as:

ŸPreparing sales forecasts

ŸDetermining the quantities of goods and/or services needed to attain forecasted sales

ŸMaking modifications within, additions to, and deletions from the product line

ŸDeveloping new products and/or services

ŸBuying goods and/or services for resale 

To consolidate and improve your product line, you should use the 80/20 rule.  This rule is a rough but useful guide for making decisions in the product management area.  In fact, you’ll find this works just as well in other aspects of your business operation. 

Let me illustrate how the 80/20 rule is useful:

Ÿ80 percent of the products in your line bring in only 20 percent of the company’s sales, and 20 percent of the items produce about 80 percent of the firm’s revenues.

Ÿ80 percent of the orders submitted by a sales force are written by about 20 percent of the salespeople, and vice versa. 

Monitor your product line regularly.  Shortly after the close of each year, prepare your product-sales data with the following information:  1) units sold, 2) sales dollars per product, 3) cost of goods sold per product, and 4) gross profit per product. 

Sort these lists from the best sellers to the worst.  Then red flag and evaluate the lowest 20 percent on each list.  One by one, thoughtfully examine each product.  Before deciding to drop an item from your line, try to find answers to such questions as:

To what can we attribute its lackluster performance?

Was it priced too high?  Too low?

Were its sales affected negatively by some competitive item in our line?

How much more would we have sold if we had promoted it properly?

Is the item in the decline stage of its product life cycle?

ŸCan we redesign the product to make it more salable?

Can we locate an untapped market for the product?

ŸIs this product required as an add-on to a high-profit item? 

Spend your time focusing on the products that bring you the most profit.  After careful consideration, start building a list of the items to drop from your product line.