The sales mix is critical as some of a company’s products or services invariably have higher margins than others. Or even worse, no margins at all. So expanding sales of a product or service that generates low margins and minimum coverage of the mostly fixed sales and general administrative costs, may not generate much net overall profits.
Thus, such sales may do little to help the company long term, unless part of a strategic plan to eventually generate higher margin products/ services. Probably not much of an expansion plan otherwise! Typically, the Finance Team, in conjunction with the Operations and Sales Teams, works to determine product and services overall gross margins. In a company with systems, processes and controls that means the company can determine profitability by:
+ Salesperson
+ Geographical region and/or sales person
+ Customer
Armed with this information the Sales Team often can develop better insights into what they are seeing in the field and translate that into ways to more effectively sell the company’s products / services at higher margins…. often with a corresponding effect on cash flows.