SKU-Level Profitability: Find Your Real Winners and Losers

Total sales and total revenue hide the products that make your money and the ones that lose it. SKU-level profitability is the profit or loss a single product generates after every cost it actually incurs. For an experienced seller looking to scale profit, it is the clearest way to decide where to put stock, ad budget and time.

The formula

For each SKU, take its sales price and subtract the costs that product caused: cost of goods, shipping and packaging, marketplace fees, payment or transaction fees, advertising spend and returns and refunds. What is left is the contribution margin, the profit the SKU contributes before shared overheads.

Do this for each SKU on each channel separately. The same product can be profitable on one marketplace and a loss on another because the fees, shipping and return rates differ.

A worked example

These figures are illustrative. Two SKUs each sell for £20 excluding VAT. SKU A costs £6, with £3 in fees, £3 in shipping and £1 in ad spend per unit, leaving £7 per unit, a 35% contribution margin. SKU B costs £8, with £3 in fees, £3 in shipping and £4 in ad spend per unit, leaving £2 per unit, a 10% margin. If returns on B run higher, it can slip below zero.

On a revenue report these two look identical. On a profit report, SKU A earns three and a half times as much per sale.

What it lets you do

• Find your real winners and move stock and budget towards them.
• Find loss-makers and decide whether to reprice, cut ad spend, renegotiate cost or drop the listing.
• See which channel each product earns most on, instead of treating all channels as equal.
• Set a break-even ACoS for each product, since it follows directly from the margin you calculated.

Why it is hard to keep accurate

The data lives in different places: orders and fees in each marketplace, product cost in your inventory system, ad spend in the advertising console, refunds arriving weeks later. Doing this by hand works for a few dozen SKUs and breaks down at scale. The common failure points are missing product costs, allocating shared costs badly and counting refunds in the wrong month.

A practical way to start

• Pick your top 50 SKUs by revenue and calculate contribution margin for each on its main channel.
• Sort by margin, not revenue, and look at both ends of the list.
• Check that product costs are current and that returns are included.
• Act on the bottom of the list first, because that is where profit is leaking.
• Repeat monthly, or automate it so the numbers stay live.

WhatSales calculates profit per order and SKU after fees, shipping, refunds, ad spend and product cost across the marketplaces you connect, so the list above is available without the spreadsheet work.

What is SKU profitability?

It is the profit or loss a single product generates after all the costs that product incurs, including cost of goods, fees, shipping, advertising and returns.

What is contribution margin per SKU?

It is the sales price minus the variable costs of selling that SKU. It shows how much each unit contributes towards overheads and profit.

How often should I review SKU profitability?

Monthly at minimum, and whenever fees, shipping rates or product costs change. Live profit data removes the need to wait for a monthly review.