Price-volume analysis: was it fewer units or lower prices?
August revenue is THB 0.516m below budget. The first question in the meeting is whether the company sold less than planned or sold for less. The two answers lead to different fixes.
The formulas
The two add up exactly to the product's revenue variance, so nothing goes missing and the split can be checked every time.
Valuing volume at budget price and price at actual quantity is the most common convention. Some companies show the part where both moved as a third line. Pick one convention and keep it, so that the months compare.
The example in the workbook
In the example every product sells at its budget price. The price effect is zero, and the whole THB 0.516m revenue shortfall is volume.
Every product sold fewer units than budgeted. Industrial supplies, for instance, sold 4,810 units against 5,068.
So the next questions go to sales: did demand soften, did stock run short, or did orders slip into next month?
Product mix
Across several products, selling less of a high-margin product and more of a low-margin one lowers total gross profit even if no price or unit cost changes.
In the example Assembly kits earn a 38.72% gross margin and Fabricated parts 30.26%, on similar revenue. Sales moving between those two shift the overall margin.
To isolate a mix effect properly, work at gross-profit level rather than revenue, and only across products whose units can be compared.
Prices on budget, margin still down
Revenue is only half the picture. The trading line's combined gross margin is 33.67% against a 35.33% budget, although it sold at budget prices. The gap comes from the cost of goods received and the weighted-average stock method.
So read a unit-cost effect beside the price effect. Cutting price to win volume can move the problem from quantity into margin.
Before taking it to the meeting
Check each product's unit of measure, and never add together quantities counted in different units.
Check whether discounts are booked as a reduction in selling price or as a separate expense line. If they are separate, the price effect looks like zero although customers are paying less.
A price-volume split shows which part produced the variance, not why it happened; that still needs evidence from sales. The full reading order is in the Sales & Gross Margin guide.
Common questions
The price and volume effects do not add up to the revenue variance. Why?
Usually the two formulas use inconsistent bases, for example budget price in both. With volume valued at budget price and price at actual quantity, they add up exactly. Also check that quantity and revenue come from the same set of transactions.
Does price-volume analysis work for a service business?
Yes, where there is a clear unit, such as billable hours, contracts or users, with revenue per unit as the price. Where every job is too different to share a unit, the split becomes hard to interpret.
Read next
Figures in the articles are synthetic sample data, used to show the method. They are not a real company's results.
