Did gross margin change because of price, cost, or product mix?

Use the same definition of revenue and cost of sales in both periods. Identify changes in account mapping, returns, currency, inventory costing, and product classification before treating the movement as commercial performance. A newly included fulfillment cost can lower reported margin without changing the underlying economics.

Reconcile product-level revenue and cost to the approved statements or explain the management-reporting adjustments. Keep incomplete or estimated product costs visible. A precise percentage built on missing costs is not a useful basis for a pricing decision.

Compare realized selling price after discounts with the relevant unit cost. Identify supplier increases, shipping or acquisition costs included in inventory, promotions, and returns. Keep the quantity measure consistent when products are bundled or sold in different pack sizes.

For an illustrative product sold at $100 with a $60 cost, gross profit is $40 and gross margin is 40%. If the selling price remains $100 and the cost rises to $65, gross margin falls to 35%. If the cost stays $60 but the realized price falls to $90, margin is about 33.3%. Those changes call for different responses.

Overall margin can fall even when every product's unit economics are unchanged, because customers buy more of the lower-margin products. Compare each product's share of revenue or quantity using a clearly defined method. Keep new and discontinued products identifiable rather than forcing them into an artificial like-for-like comparison.

When constructing a formal price, cost, volume, and mix bridge, document the calculation order and treatment of interactions. Different decomposition methods can allocate the interaction differently. The final bridge should still reconcile to the actual total change without hiding a residual.

A price issue may call for reviewing discounts or contract rates. A cost issue may involve purchasing, freight, waste, or accounting cutoff. A mix change may be acceptable when it improves total contribution or serves another documented business objective. Do not judge a product only by its percentage margin without considering volumes and capacity.

Save the comparison and its assumptions, then review the result after the next relevant period. Keep accounting corrections separate from commercial changes so the business can tell whether the action improved economics or merely changed the report.