E-Commerce
Most e-commerce operators don't know which products actually make money. Revenue hides the answer. Margin by SKU reveals it.
High-revenue SKUs generate cash but often produce thin or negative margins — especially when ad spend is allocated against them. Low-revenue SKUs sometimes carry 60%+ margins and require zero paid acquisition.
Ranking by revenue shows you what sells. Ranking by margin shows you what you should sell more of.
Price
What the customer pays, net of discounts
COGS
Unit cost including all landed costs
Ad spend
Allocated ad cost per order — not account-level ROAS
Other costs
Platform fees, return reserve, fulfillment if variable per SKU
Run every SKU through the same margin formula. Sort descending by margin percentage, not profit dollars. A SKU with a $3 profit on a $10 product (30% margin) may be better than a SKU with $8 profit on a $80 product (10% margin) — depending on acquisition cost and scalability.
Tier 1: 25%+ margin
Scale. Increase ad budget, expand to more channels, push volume.
Tier 2: 10–25% margin
Optimize. Reduce COGS, improve conversion, test price increase before scaling.
Tier 3: 0–10% margin
Fix or cut. Do not scale until margin improves. Find the cost to reduce.
Tier 4: Negative margin
Cut paid traffic immediately. Reprice or discontinue. Every order costs you money.
Most ad platforms optimize for conversion, not margin. They will spend heavily on products that convert well — regardless of whether those products make money. You have to enforce margin-aware allocation manually.
Method: Calculate max allowable cost per acquisition (CPA) per SKU. Set campaign-level CPA targets based on true margin, not account averages.
Max CPA = Price × Target Margin
Example: $79 price × 25% target = $19.75 max CPA
Do not scale any campaign where actual CPA exceeds this threshold.
Discontinue a SKU when all of the following are true: (1) margin is below 10% after genuine optimization attempts, (2) COGS cannot be reduced further, (3) price cannot be increased without volume impact that makes math worse, and (4) organic/repeat demand is negligible.
Holding low-margin SKUs "for selection" destroys capital. Catalog breadth is not a competitive advantage if the products in the catalog cost you money.