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Methodology

Product Mix Profit Planner methodology

This planner compares baseline and proposed contribution across a bounded set of product rows.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Product contribution
Cᵢ = (Pᵢ − Vᵢ) × Uᵢ

Where

Pᵢ
product price excluding indirect tax (currency units/unit)Source: Business record
Vᵢ
product unit cost excluding indirect tax (currency units/unit)Source: Business record
Uᵢ
product units (units/period)Source: User decision
Cᵢ
product contribution (currency units/period)Source: Calculated output
Mix contribution
C = ΣCᵢ

Where

C
total contribution (currency units/period)Source: Calculated output
Weighted contribution margin
M = ΣCᵢ ÷ Σ(Pᵢ × Uᵢ)

Where

Pᵢ
product price excluding indirect tax (currency units/unit)Source: Business record
Uᵢ
product units (units/period)Source: User decision
M
weighted contribution margin (decimal)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The example shifts volume from a core product to a higher-contribution premium product.

Calculation and outputs

Example

The example shifts volume from a core product to a higher-contribution premium product.

Current contribution
5,800.00 currency units
Proposed contribution
6,440.00 currency units
Contribution change
640.00 currency units
Current weighted contribution margin
41.4%
Proposed weighted contribution margin
42.4%

The planner compares total contribution and weighted margin without treating either result as net profit.

Interpretation

Use the contribution change to judge whether the proposed sales mix improves unit economics for the same planning period.

3. Validation and boundary checks

  • Each product row reconciles revenue, unit contribution and total contribution.
  • Cluster totals equal the sum of product rows.
  • Weighted margin is left undefined when mix revenue is zero.

4. Assumptions and source classification

  • Use 1–20 products and one consistent planning period.
  • All prices and costs exclude indirect tax.
  • Unit costs remain constant across each volume scenario.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes shared fixed costs and operating expenses.
  • It does not predict demand, substitution, capacity or stock availability.
  • It is educational decision support, not accounting, tax, legal or business advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

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