Sales Bridge for SAP Business One – Revenue Price, Volume and Mix Analysis
Do you sometimes find yourself looking at your revenues versus your targets or versus last year and wonder what really makes up the difference? While you may have your standard Sales Analysis reports, they often don’t tell you the entire story. In this article, we’ll explore the benefits of a Sales Bridge for SAP Business One (sometimes known as the Price, Volume, Mix analysis) and how it better explains the delta between your sales targets, last year’s sales and your actual sales for the reporting year.
To help us understand the importance of a Sales Bridge, let’s begin with a simple example. Suppose that we sell only two products, Product A and Product B. Let’s consider the following budget data:
The Sales Bridge breaks down any variance from budget into three components: Price, Volume and Mix effects. Take a look at the following actual data.
At first glance, you see that sales have increased by $450,000, which represents an almost 10% increase in revenues for period over the budgeted amount. This deserves a big hoorah as beating the target by almost 10% is not too bad. However, let’s find out how we beat the budget. We’ll start by looking at how much increased volume added to the delta.
Look at the budgeted quantity and the actual quantity at budgeted percentages below. The “Actual Qty at Budget Mix” is derived by multiplying the total actual quantity from all products by the percentage of the total that the respective product was budgeted for.
You see from the chart above that we have increased total units by 500. When multiplied by the budgeted prices, we get actual revenue at the budget mix. This adjusted revenue for volume is shown below.
Now, when we compare that to the original budget, we see how much volume attributed to the increase in revenues.
The company has benefited by $330,000 from increased sales volume. Here is a sample of the report in SAP Business One.
Now let’s turn to the mix of products sold. When looking at the mix analysis, we first isolate the difference in quantity sold of a given product compared with the expected quantity that we would have sold if we had kept the mix of products at the same percentage as budgeted. See the results below:
In total, there is no change as the calculation used the total actual quantity to get the quantity at budget mix. Now look at the effect on revenues, which is derived by multiplying the mix effect on quantity by the budgeted price.
Lastly, let’s evaluate the impact that the average price of units sold had on the revenues. This is done by simply comparing the actual average price of all units sold against the budgeted price and multiplying by the actual units sold.
We can now explain the total variance from budget with the sum of the individual components that we have just reviewed. See the summary below.
In conclusion, it appears that the sales force worked hard to sale more units and at higher prices, but, may have been pushing the lower end product more in order to make more sales. In the real world, this could result in lower profits if the profit margin of the lower price product is significantly less. You can actually do this same analysis with gross margins as well.
One important take away from this example is if the products had not sold for higher average prices than budgeted, sales would have actually been lower than budget since the improvement from the volume effect by itself is lower than the decrease that came from the mix effect.
For an explanatory video, see our YouTube channel here.