Don’t Let Unprofitable Products Bring Down Your Business

Don’t Let Unprofitable Products Bring Down Your Business

To run a profitable business, you need to know what’s working and what’s not.

Tracking profitability at the Product/SKU level is just one way to separate the winners from the losers. Liquidating underperforming products and scaling profitable products can significantly add additional profits to your bottom-line.

By understanding your product-level analytics you can drastically increase your profit productivity.

Your trusty excel and/or Google Sheets might be useful tools for tracking and crunching data in some cases, but they are also extremely time-consuming and prone to human error. Risking skewed numbers because of inaccurate formulas which lead to wrong decisions make for costly mistakes.

Many e-commerce businesses make the mistake of having too much attention on what drives up revenue, but fail to understand what makes up their current revenue. Sure business mismanagement, inventory overstocking, stock-outs and high variable service costs can put you out of business even if you’re hitting your revenue targets. But knowing exactly how your revenue is made up will help you prioritize which products you should place most of your attention and which ones you should cut.

Revenue isn’t always the important thing — profitability is a by-product of diligent productivity. And, profitability doesn’t need to come at the expense of the customer. There are plenty of ways to increase profits than to chip away at your customers’ experience.

Product profitability reporting is your solution. 

Do you know what your Top Sellers Are? Do you which products are struggling to maintain a profit? Do you know which products are costing you money?

Losing money on a sale is a real possibility if you are not paying close attention to the real costs of selling.

Understanding what your product is making on the order level can pinpoint exactly where the issues might be. And, creating a productive solution will ultimately have a positive impact on your bottom line, whether you turn the product around or liquidate it.

Product performance tracking is the key to improving your bottom line. Being able to pinpoint which products are losing money, and fixing the problem is how the game is won.

The real question is, how closely do you need to analyze your products to know exactly how they are affecting your bottom line?

We say… as granular as possible!

Each marketplace charges a different set of fees. Understanding these costs and tracking them down allows you to add them to your overall cost analysis to determine how profitable the product is selling on that marketplace.

With product-level data, you get to view your business performance from a multi-angle viewpoint.

To calculate your profitability by product isn’t easy, especially factoring the variable service fees and multi-channel fulfilment. This is the data you will need to create a product profitability index:

Order Transactional Fees – These are expenses you incur for making a sale. If you are selling on Amazon, then there are plenty of fees to track down. (Shipping Credits, Gift Wrap Credits, Promotional Rebates, Selling Fees, FBA Fees, Other Transaction Fees and Other Fees)
COGS Data – Cost of goods sold refers to the direct costs of producing the product. This amount includes the cost of the materials and labor directly used to create the product.
Advertising Data – Advertising costs are costs that covers expenses associated with promoting your product. And, covers advertising spend from all marketing channels online and offline.
Storage Costs – the overall costs of storing and maintaining your inventory levels. Whether at your own warehouse, 3PL’s or at FBA centers.
Shipping Fees – This is the cost incurred for using shipping carrier services like UPS and FedEx. Amazon Partner-carrier fees incurred from shipping to FBA fulfillment centers should also be included for profitability analysis
Insurance Costs – These are costs related to insuring product in transit.
Other Fees – any charges incurred for having orders fulfilled by a 3PL or Amazon FBA

Running a profitable business takes being diligent at numbers. But all too often this level of meticulously detailed reporting gets pushed to the side as seeming more important tasks get handled first. Understandably, you didn’t get into business to be a number cruncher.

But, by tracking product profitability you will be better equipped to make better decisions on:

- Underperforming products
- Your channel strategy
- Discontinuing an underperforming product.

If you are not tracking your product metrics, you have zero idea that there is a hole in your bucket, but instead of losing water, you are losing dollars.

Let’s optimize for profit.

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