Holiday discount margin variance: a December worked example
Last reviewed 2026-09-28
When December revenue beats plan but gross profit misses it, split the gross profit movement into four effects: volume (how many more units), mix (which products they were), price (what the discounts gave away) and cost (what each unit cost to deliver). The four must add back exactly to the movement. Anything the general ledger shows beyond that is unexplained, and stays visible until somebody establishes its cause.
The December plan and what happened
An online store planned December with two products and ran two promotions: 20% off the classic mug, and 10% off the gift bundle, whose packing cost also rose by $2.00 a unit.
| Product | Plan units | Plan price | Plan unit cost | Actual units | Actual price | Actual unit cost |
|---|---|---|---|---|---|---|
| Classic mug | 2,000 | $50.00 | $30.00 | 3,200 | $40.00 | $30.00 |
| Gift bundle | 500 | $120.00 | $66.00 | 550 | $108.00 | $68.00 |
| December | Plan | Actual | Movement |
|---|---|---|---|
| Revenue | $160,000.00 | $187,400.00 | +$27,400.00 |
| Gross profit | $67,000.00 | $54,000.00 | −$13,000.00 |
| Gross margin | 41.9% | 28.8% |
Revenue is up $27,400.00 and gross profit is down $13,000.00. “Sales were strong” is true and explains none of it.
The four effects
| Effect | How it is calculated | December |
|---|---|---|
| Volume | Change in total units × the plan’s average unit margin | +$33,500.00 |
| Mix | Each product’s units against its planned share of the actual total, at plan unit margin | −$6,800.00 |
| Price | Actual units × (actual price − plan price) | −$38,600.00 |
| Cost | Actual units × (plan unit cost − actual unit cost) | −$1,100.00 |
| Gross profit movement | −$13,000.00 |
Read it in order. The promotions sold 1,250 more units than planned, worth +$33,500.00 at the planned margins. But the extra units were mostly the lower-margin mug, so the blend cost $6,800.00. The discounts themselves gave away $38,600.00 on the units actually sold, and the bundle’s packing cost took $1,100.00.
Did the discount pay for itself?
The mug was planned at 2,000 units and a $20.00 unit margin. At 20% off, the unit margin fell to $10.00, so matching the planned gross profit needed 4,000 units. It sold 3,200: a strong lift that still fell short of break-even. The way to judge a promotion is against that break-even volume, not against the plan’s unit count.
When the ledger disagrees
The general ledger shows a December gross profit movement of −$13,450.00, while the product detail explains −$13,000.00. The difference, −$450.00, is not added to price or mix. It is reported as unexplained, with an owner and the evidence needed to find it, and any report published before it is resolved says so.
The formulas and a second example are in the price volume mix analysis explainer.
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Valcenra builds this bridge from your own plan and actual product detail, ties it to the ledger movement, and keeps any difference it cannot explain as an open item with an owner rather than folding it into mix.
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Common questions
- Why can revenue rise while gross profit falls in December?
- Because a discount cuts the margin on every unit sold at the lower price, while the extra volume only adds margin at the new, smaller unit margin. In the example, revenue rises $27,400 and gross profit falls $13,000: the price effect of the discounts is larger than the volume the promotion brought in.
- What is the difference between the price effect and the mix effect?
- The price effect is what the change in selling price did, at the quantity actually sold. The mix effect is what selling a different blend of products did, valued at the planned unit margins. A promotion on a lower-margin product usually shows up in both: a negative price effect, and a negative mix effect as the blend shifts towards it.
- How many extra units does a discount need to break even?
- Divide the gross profit the product was planned to make by the unit margin after the discount. In the example, the plan was 2,000 units at a $20.00 margin, or $40,000; at 20% off the unit margin is $10.00, so the promotion needed 4,000 units, twice the plan, just to stand still.
- What if the bridge does not tie to the general ledger?
- Report the difference as unexplained, with an owner and the evidence needed, rather than adding it to price or mix. In the example the ledger shows $450.00 more decline than the product detail explains, and that amount stays visible until somebody establishes its cause.
An illustrative example with invented figures. General information, not accounting advice. Last reviewed 2026-09-28.