Analyze the Product Mix Just Like a Bowl of Nuts
While at a party I found myself next to an intriguing bowl of delicious mixed nuts – cashews, walnuts, peanuts, and pistachios. As long as I can remember, I have been addicted to those tasty morsels yet they conflict with my diet goal, so I grabbed a competent and moved away quickly while congratulating myself on my discipline. My favorites are the cashews and pistachios. The next time I looked at that bowl I estimated that about 40% of the nuts were cashews and 5% pistachios so, in the interest of scientific inquiry, I grabbed another handy and moved away quickly. Instead of ingesting the whole handy at once, this time I opened my hand, counted and found my estimate was correct and then ate them all (after all I had touched them).
Since business issues are always on my mind I started thinking about the concept of "product mix" and wondered how the nut company developed their formula for putting the most attractive mixture together to entice prospects yet balancing the cost of the various varieties to create a profitable product. This, of course, led me to think about the product mix in a business.
Every business has some products (or product categories) that return higher profit, greater sales volume, greater sales per sq. ft., or sales per hour. Others do far less for the bottom line. Some may be complete losers, costing the business because of low sales, high support expense, or the need for extra effort in sales or production. They should be removed from the product mix unless there is a compelling reason to retain them.
Without the product mix is analyzed frequently a business will often keep the losing products or product categories and profitability is lost. The solution is to develop a method of analyzing sales and profits against costs and effort and then remove or minimize the investment in those that do not perform to a minimum standard. That way you have more cashews and pistachios (more profitable products) in the product mix and a more addictive, tastier snack (profitable business).