Level 3 · Revenue mix vs margin mix

Two shares of the same pie

A mix is how a total splits across groups. Revenue mix is each category’s share of sales; margin mix is its share of gross margin. When every category had the same margin %, the two mixes would be identical. They differ exactly where margins differ:

• A category with an above-average margin % has a bigger share of margin than of sales.
• A category with a below-average margin % has a smaller one.

The gap between the two shares, in percentage points, is a quick way to see who carries the profit.

Shares use the grand total

cat = costed.groupby("category")[["net", "margin"]].sum()
cat["net"] * 100 / cat["net"].sum()       # sales share, adds up to 100
cat["margin"] * 100 / cat["margin"].sum() # margin share, adds up to 100

Each share divides a category’s sum by the store-wide sum of the same column. Dividing margin by the category’s own sales would give its margin %, which is a different number with a different question behind it.

Percentage points, not percent

The gap is a difference of two percentages, so it is measured in percentage points. A category going from a 23% share to a 21% share lost two points, which is a 9% relative drop. Write “pts” for the first and ”%” for the second; mixing them up is one of the most common errors on slides.

What to do with the gap

A gap is not a verdict. Outdoor’s lower margin share comes with the largest sales, and dropping it would lose margin dollars. The gap tells merchandising where an extra dollar of budget earns more: in the categories that keep more of each sale, as long as demand is there. Pair it with the margin dollars from level 1 before recommending anything.

Common mistakes

• Shares that do not add to 100. A sign the denominator was the group, not the total.
• Rounding before subtracting. Two rounded shares can make a gap of 0.01 that is really 0.004.
• Ranking categories by sales share alone. It describes size, not value.

Interview note

“How would you allocate a budget across product lines?” Start with both mixes. Showing that sales share and margin share disagree, and by how much, is a strong first answer.