Price-Volume-Mix (PVM) Analysis: A Worked Example
By Newtown Analytics · · 6 min read
For finance, fp&a & accounting managers
Price volume mix analysis breaks the change in revenue or profit between two periods into three causes: the prices you charged, the number of units you sold and the combination of products in those units. It matters because a single revenue variance can hide very different stories. Revenue can rise while profit falls, or a volume shortfall can be offset by a favorable mix. This page walks through one complete worked example with three products, first on revenue and then on gross profit, and shows how to present and act on the result. It builds on budget variance analysis and the formulas in variance analysis formulas, and is part of budgeting and forecasting.
The data
A hypothetical company sells three products. Budget and actual results for the period are below. Unit costs equal their standards, to keep the focus on price, volume and mix.
| Product | Budget units | Budget price | Unit cost | Actual units | Actual price |
|---|---|---|---|---|---|
| A | 5,000 | $40 | $24 | 4,200 | $41 |
| B | 3,000 | $70 | $49 | 3,600 | $68 |
| C | 2,000 | $100 | $80 | 2,400 | $97 |
| Total | 10,000 | 10,200 |
Revenue
| Product | Budget revenue | Actual revenue |
|---|---|---|
| A | 5,000 × $40 = $200,000 | 4,200 × $41 = $172,200 |
| B | 3,000 × $70 = $210,000 | 3,600 × $68 = $244,800 |
| C | 2,000 × $100 = $200,000 | 2,400 × $97 = $232,800 |
| Total | $610,000 | $649,800 |
Total revenue variance: $649,800 - $610,000 = +$39,800 (favorable).
The budget mix is A 50 percent, B 30 percent, C 20 percent. The budget average price is $610,000 / 10,000 = $61.
Revenue PVM
Price variance
Price variance = (Actual price - Budget price) × Actual units, by product.
| Product | Calculation | Variance |
|---|---|---|
| A | ($41 - $40) × 4,200 | +$4,200 |
| B | ($68 - $70) × 3,600 | -$7,200 |
| C | ($97 - $100) × 2,400 | -$7,200 |
| Total | -$10,200 |
Volume variance
Volume variance = (Actual total units - Budget total units) × Budget average price = (10,200 - 10,000) × $61 = +$12,200.
Mix variance
Mix variance = (Actual units - Actual total units × Budget mix %) × Budget price, by product.
Expected units at the actual total of 10,200: A 5,100, B 3,060, C 2,040.
| Product | Calculation | Variance |
|---|---|---|
| A | (4,200 - 5,100) × $40 | -$36,000 |
| B | (3,600 - 3,060) × $70 | +$37,800 |
| C | (2,400 - 2,040) × $100 | +$36,000 |
| Total | +$37,800 |
Check
-$10,200 (price) + $12,200 (volume) + $37,800 (mix) = $39,800, which equals the total revenue variance. The check always works if each component is calculated on its stated base.
Reading the result
Revenue rose by $39,800, but only $12,200 came from selling more units. The largest part, $37,800, came from selling relatively more of products B and C, which have higher prices. Price realization was negative: the company gave up $10,200 on B and C to win the extra volume.
Gross profit PVM
Revenue is not profit. Re-run the analysis on gross profit using the budget margin per unit: A $16 ($40 - $24), B $21 ($70 - $49), C $20 ($100 - $80).
Budget gross profit: A 5,000 × $16 = $80,000; B 3,000 × $21 = $63,000; C 2,000 × $20 = $40,000. Total $183,000. Budget average margin per unit = $183,000 / 10,000 = $18.30.
Actual gross profit (actual price minus standard unit cost): A 4,200 × ($41 - $24) = $71,400; B 3,600 × ($68 - $49) = $68,400; C 2,400 × ($97 - $80) = $40,800. Total $180,600.
Gross profit variance: $180,600 - $183,000 = -$2,400 (unfavorable).
| Component | Calculation | Variance |
|---|---|---|
| Price | Same as revenue price variance (costs at standard) | -$10,200 |
| Volume | (10,200 - 10,000) × $18.30 | +$3,660 |
| Mix | A: (4,200 - 5,100) × $16 = -$14,400; B: (3,600 - 3,060) × $21 = +$11,340; C: (2,400 - 2,040) × $20 = +$7,200 | +$4,140 |
| Total | -$2,400 |
Check: -10,200 + 3,660 + 4,140 = -2,400.
Why the stories differ
On revenue, the company looks $39,800 ahead of plan. On gross profit, it is $2,400 behind. The reasons:
- The mix effect shrinks. On revenue, mix was worth +$37,800 because B and C have higher prices. On margin, it is worth only +$4,140, because their margin per unit is not much higher than product A's. Revenue-weighted mix overstates the benefit.
- Price erosion is pure profit loss. A $10,200 price shortfall reduces profit dollar for dollar; no cost saving offsets it.
- Volume is worth less in profit than in revenue. The extra 200 units produced only $3,660 of gross profit, against $12,200 of revenue.
A manager who looks only at the revenue line would celebrate. The gross profit view tells a different story: the team has bought volume with price concessions.
How to present the result
A simple bridge chart or table works best.
| Step | Gross profit |
|---|---|
| Budget | $183,000 |
| Price | -$10,200 |
| Volume | +$3,660 |
| Mix | +$4,140 |
| Actual | $180,600 |
Add one sentence on each: "Price concessions on products B and C cost $14,400 and were partly offset by $4,200 of price gain on A; volume was 2 percent above plan; mix shifted toward B and C."
Questions to ask
- Which discounts or promotions drove the price decline, and were they approved?
- Did the extra volume come from new customers or from existing ones buying more at a lower price?
- Is the mix shift temporary (a promotion) or structural (a change in customer demand)?
- What happens to the margin if the mix continues to shift?
- Are cost variances hiding in this analysis? Add them as a separate step (cost rate and efficiency).
Practical tips
- Do the analysis at product level, not just the total, or mix will not appear.
- Decide the level of "product": SKU, family or channel. Too detailed produces noise; too broad hides the mix.
- Always do both revenue and margin. Margin tells you what mattered.
- Keep the same cost basis across budget and actual to avoid mixing cost variances into PVM.
- Automate it. Build the formulas once in a spreadsheet and refresh monthly.
PVM is the bridge between the plan and the economics of what you sell. For the unit-level margins behind it, see unit economics.
Common mistakes
- Using average price and average cost, which hides the mix.
- Running PVM only on revenue.
- Mixing cost variances into the price bucket.
- Not checking that the components add to the total.
- Forgetting that mix depends on the level at which products are defined.
Related guides
To understand the signs in the table, see favorable vs. unfavorable variances. To present PVM in a monthly report, see budget vs. actual report: template and commentary tips.
FAQs
What is price-volume-mix analysis?
A method that splits the change in revenue or profit between two periods into effects from prices, volumes and the mix of products sold.
How do you calculate mix variance?
For each product, take actual units minus actual total units times the budget mix percentage, and multiply by the budget price (or margin).
Why is mix variance different for revenue and margin?
Because products with higher prices do not always have proportionally higher margins. Margin mix reflects profitability, which is usually what matters.
Can price, volume and mix variances be negative while total is positive?
Yes. One may be positive and others negative, as in the example, where volume and mix were favorable and price was unfavorable.
When should I use PVM?
Whenever revenue or profit changes and the company sells more than one product, channel or customer type.
Keep reading
This article is for general information. It is not accounting, tax, legal or investment advice, and examples use illustrative numbers rather than client data. Confirm decisions that carry financial or legal consequences with a qualified professional.