Basic, lesson 1 of 4
The revenue side: price, volume, and mix
Revenue is price times volume, but each of those splits further, and the split you pick decides which data you ask for. Mix is the driver candidates miss most.
9 min, 3 checks
1Three ways to write volume
Price times volume is the first cut. The second cut depends on the business, and picking the one that matches how the client actually sells is what makes a structure feel specific instead of memorized.
| Business | Volume split | What you ask for |
|---|---|---|
| Retailer or restaurant | Stores x traffic per store x conversion | Same store traffic, new stores, closures |
| Subscription | Starting customers + new - churned | Gross adds and churn rate by month |
| Manufacturer or B2B | Market size x market share | Market growth versus share change |
Price splits too: list price, discounts and promotions, and realized price after both. A client that held list prices flat can still see realized price fall 5% because sales reps gave away more discount.
Check 1
A store gets 2,000 visitors a day, 25% of them buy, and the average basket is $40. What is daily revenue, in dollars?
Check 2
Price rises 6% and volume falls 4%. By what percent does revenue change? Two decimals.
2Mix: revenue moves with no price change
When a client sells several products at different prices, the average price can fall even if no list price changed. That is a mix effect, and it often explains a revenue drop the CEO cannot.
Worked example
Hollis Tools sells a Basic drill at $20 and a Pro drill at $50
- 1Last year: 80,000 Basic and 20,000 Pro. Revenue 1.6M + 1.0M = $2.6M. Average price $26.
- 2This year: 90,000 Basic and 10,000 Pro. Revenue 1.8M + 0.5M = $2.3M. Average price $23.
- 3Units are flat at 100,000 and neither list price moved.
Revenue fell $300,000, all of it from customers trading down to Basic. The next question is why Pro buyers left: a competitor, a quality problem, or a weaker economy.
Check 3
A coffee chain's revenue is flat. Which first split of revenue is MECE and most useful?
Terms in this lesson: MECE.
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