Product mix optimisation: sell more of what actually pays

Aug 22
3 min read

Updated: 3 days ago

Introduction

Most businesses know which products sell best. Far fewer know which ones make money, and the two lists are rarely the same.

That gap is where a large, free improvement usually sits: the same customers, the same traffic, a different mix of what they buy.

1. Product mix optimisation needs margin per item, not revenue per item

Revenue rankings are misleading because they hide cost. A bestseller with thin margin can contribute less profit than a slow item with a wide one.

So the first task is unglamorous: calculate gross margin for each product or service. Direct cost, subtracted from price, per unit.

For service businesses substitute delivery hours for cost of goods. The equivalent number is margin per hour of the work, which is the only way to compare a quick job against a long one honestly.

2. Sort everything into four groups

Plot each item on two axes — volume sold, and margin per unit.

High volume, high margin. Your best items. Protect and promote them.

High volume, low margin. Traffic drivers. Keep if they genuinely bring people in, reprice if they do not.

Low volume, high margin. The opportunity. These need visibility, not changes.

Low volume, low margin. Candidates for removal. They consume attention, stock and menu space for nothing.

3. The low-volume, high-margin group is where the fast gain is

These items already work commercially; almost nobody is being shown them.

Fixes are cheap: better placement on the menu or page, a staff prompt, a photograph, a bundle that includes one, or simply moving them out of a position nobody looks at.

No pricing change, no new customers, no cost. Just visibility for the things you would most like people to buy.

4. Be careful before cutting the low-margin volume sellers

They frequently serve a purpose that does not appear in their own margin line.

A cheap staple can be the reason customers come at all, and the profit arrives on everything else they add. Removing it can cost more than it saves.

Before cutting, check what else appears in the same transactions. If it rarely travels alone, it is earning its place; if people buy it and nothing else, it is not.

5. Reprice before removing

Removal is irreversible in practice — once the item is gone, so is the customer habit.

A small price increase on a low-margin item is the cheaper experiment. Often volume holds, because the customers buying it are not tracking your prices as closely as you are.

Try a modest rise, hold for a month, and compare units sold and total profit. That test answers what months of debate cannot.

6. Cut the range if it has grown by accretion

Most ranges expand and never contract. Items get added for a season, a request, an experiment, and stay.

The cost of a bloated range is not obvious: slower service, more stock, more waste, more staff training, and customers taking longer to choose — which suppresses transaction value.

A shorter range built around your best four groups usually raises both margin and speed. Removing things feels like reducing choice and is generally experienced as clarity.

7. Reflect the mix in your marketing

There is no point improving the mix and then advertising the wrong items.

Whatever you promote, discount or photograph should come from the high-margin groups. Businesses routinely advertise their thinnest-margin product because it is the most popular, which grows revenue and shrinks profit.

Check what your last five promotions featured, and which group each item was in.

8. Review quarterly, because the numbers move

Costs change, suppliers change prices, popularity shifts seasonally, and an item can cross from one group to another without anyone noticing.

A quarterly review of the same two columns catches this. Keep the previous quarter's grouping so movement is visible — an item drifting from high to low margin over three quarters is a supplier conversation, not a menu decision.

Judge the whole exercise on gross profit and profit per transaction, not on revenue, which can rise while the business gets worse.

Conclusion

Calculate margin per item, or margin per hour for services, then group everything by volume and margin.

Give the low-volume, high-margin items visibility first, investigate what low-margin volume sellers pull along with them before cutting, prefer repricing to removal, trim a range that grew by accretion, promote only from the profitable groups, and re-run it quarterly against gross profit.