PVM Analysis

What is PVM Analysis? A method to analyze revenue changes by breaking them into price, volume, and mix components.

Formula: Total Revenue Change = Price Effect + Volume Effect + Mix Effect.

•Price Effect Per Product: Revenue impact due to changes in selling price while keeping volume and mix constant.

• Price Effect= (Actual  Price - Budgeted Price) × Actual Volume.

•Volume Effect Per Product: Measures how changes in the number of units sold affect revenue. Formula: Volume Effect = (Actual Volume – budgeted Volume) × Budgeted Price.

•Mix Effect: Analyzes revenue shifts when the proportion of different products/services sold changes. Formula:

•Mix Effect of one product = Actual Volume of the product Delta budgeted price of product Vs Average budgeted product price of all products Change of volume Weight (weight = % of total volume )

PVM in Financial Performance

•Impact on Revenue: PVM analysis helps businesses understand how price, volume, and mix shifts contribute to revenue changes.

•Profitability Considerations: Each factor affects gross and net profit differently, requiring strategic pricing and sales decisions.

•Example Calculation: A company increasing prices by 5% while volume drops by 2% sees net positive revenue impact due to mix shifts.