Sales Profitability & Margin Guardian · Brief 02
The price-realisation gap on the highest-volume line
Cost per unit climbing three weeks running while revenue per unit sits flat
The one line you configure
Where is contribution margin per unit falling, and is that a real rate change or a shift in product mix? Read revenue per unit against material cost per unit on every SKU × customer × line, every week.
In a nutshell
Three quarters of the fall is mix and one quarter is real, and only the real quarter is worth an escalation. Contribution margin per unit is down $0.80 against the prior period; decomposed at business-unit level, $0.60 of that is mix shift — the same products at unchanged economics, sold in a different blend — and $0.20 is an actual increase in material cost per unit. That $0.20 is the part with a signature: material cost per unit has risen three weeks running while revenue per unit has stayed flat. That divergence, caught while it was still three weeks old, is the pattern behind a $691K margin collapse that never finished compounding.
At a glance
What moved
Of the $0.80 fall in CM per unit, $0.60 was mix and $0.20 was cost
Computing CM per unit at business-unit level in both periods is what separates the two: stable rates inside each unit with a lower blended total is mix, falling rates inside the units is a real change. Here the units are stable and the blend moved — except for the material line, which moved on its own.
Which cost bucket rose, what it means, and who owns it
| Cost bucket, per unit | What a rise in it means | Owner |
|---|---|---|
| Material cost | Raw cost rose and the sell price was not updated — the price-realisation gap | Plant manager |
| Deductions & accruals | Too many discounts or promotions — or an accrual catching up, which is a timing event, not spend | Promotions & finance |
| Direct labour | Overtime or line inefficiency | Operations |
| Freight | Carrier rates or routing — it already varies 3–5× by destination before anything moves | Logistics |
| Warehousing | Third-party overflow when owned capacity is exceeded | Logistics |
| Direct overhead | Usually absorption from a volume drop rather than a cost increase — compare the absolute dollars | Operations |
Every bucket above sits above the contribution-margin line, which is where roughly 95% of margin issues live. The components below it — plant overhead and compliance cost — carry the other 5% and belong to plant management; a commercial team has no lever on them.
What five cents is worth on the highest-volume line
This is why the floor is alarmed near $0.10 per unit rather than at zero. On a line running half a million units a week, a five-cent slip is $25K before anyone notices it is happening and $1.3M if the year runs its course — and the same five cents on a low-volume, high-margin line would be a rounding error.
Why the weekly read catches it and the period close does not
Material cost per unit and revenue per unit both look ordinary in any single week — one drifts up a little, the other does not move. The signature is the divergence sustained across three weeks, scored against a 26-week rolling baseline. A monthly close reports the gap after it has compounded for a period; the weekly read names it in the week the price update should have gone out.
So what
Two thirds of this fall needs a note and one third needs an action. The mix shift is the business selling a different blend at unchanged economics — worth understanding, not worth escalating. The $0.20 material move is a live price-realisation gap: cost rising three weeks straight with the sell price flat, on volumes where a nickel is $25K a week. Separating the two before anyone escalates is the whole point of decomposing at business-unit level first.
The points that matter
Separate mix from rate before escalating anything
Of a $0.80 fall in CM per unit, $0.60 is mix — the same products at unchanged economics in a different blend. Escalating the headline number would have sent three quarters of it to the wrong people.
$0.60of $0.80 is mixThe gap has a shape, not just a level
Material cost per unit rising three weeks straight while revenue per unit stays flat is a specific signature. A retroactive cost correction spikes once and reverses; this does not.
3 weeksrising, price flatVolume decides what a nickel is worth
Five cents per unit is trivial on a low-volume line and $25K a week on one running 500,000 units. The floor alert is set on the thin-margin, high-volume lines for exactly that reason.
$1.3Ma year, uncaughtRecommendation
Push a price update on the materials with three or more consecutive weeks of rising cost per unit and flat revenue per unit, prioritised by volume — the rate-erosion read is scoped to lines at or above 50,000 units so the list stays actionable. Report the $0.60 mix shift as context in the same note, explicitly not as an escalation.
Questions it already answers
Is this worth escalating?
A quarter of it is. The $0.20 material-cost move is a real rate change with a three-week signature and a named owner. The $0.60 mix shift is the business selling a different blend at unchanged per-product economics, and reporting it as margin erosion is how a margin alert loses credibility.
How early can this be caught?
In the week the divergence starts. The read runs weekly against a 26-week rolling baseline, so a material cost trending up while revenue per unit stays flat is flagged on the third week rather than in the variance review after the period closes.
Where does the action actually happen?
At the customer × material pair, always. The read starts at business unit and account level because that is where the pattern is visible, but the decision — reprice, reduce promotion, or stop selling that material to that customer — only exists at the lowest level.