What Is SKU Profitability?

assorted plastic bottles with sku

SKU profitability reporting allows merchants to analyze how one product is performing compared to the others. Many companies make the costly mistake of concentrating solely on increasing sales. Even if you’re achieving your sales targets, mismanagement, overstocking, and high shipping or service costs can put you out of business. The most significant factor is profitability, not revenue.

Would you be able to tell which product performs the best and the worst if you look at them right now? How do you tell which things are doing well on a particular channel and which aren’t? You could lose money if you’re not paying attention to the manufacturing and other related costs.

The solution to this issue is SKU profitability reporting. The secret to increasing profits is to monitor the output of each commodity. Unfortunately, it can be difficult to remedy if you can’t pinpoint which product is causing you to lose money.

How to calculate the SKU Profitability

If something isn’t making you money, you should change the strategy or stop doing it. Ask yourself if the cost is shipping too high, or the price is too low. Is there anything you can do to improve your marketing? Could you package it with high-selling items to attract more customers?

You’ll need the data to measure your profitability by SKU if you want to address these questions.

COGS information

FIFO or first in, first out is one of the methods to monitor SKU profitability. It determines the cost for the oldest inventory purchased and multiply it with the total number of inventory sold to get the cost of goods sold (COGS). This allows you to keep track of any cost changes for particular goods.

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Fees for placing orders

This covers all costs associated with making a product sale.

Costs of overhead

The total costs of doing business, such as human resources, employee wages, supplies, and so on.

Fees for shipping

The expense of using shipping company facilities such as UPS and FedEx

Insurance premiums

Any costs incurred as a result of the product or shipping insurance.

Fees for fulfillment

Any costs incurred as a result of using a 3PL or Amazon FBA to fulfill orders.

Why should businesses track SKU profitability?

Seeing the big picture is beneficial because it clarifies how the company is doing and where it is headed. However, you cannot solely concentrate on the larger image at the expense of the finer points. Revenue is satisfactory, but it means nothing if the sales aren’t profitable.

You must look at your company on a more micro level to see how it is doing if you want to optimize its profits. Different goods have different abilities to sell and benefit. If you don’t look at the details, you won’t be able to make the educated decisions necessary to increase profitability.

Tracking SKU profitability can help your company in various ways, but it’s a skill that many businesses lack.

Analysis of the costs

It’s difficult to know how much money you’re making when selling your goods on several platforms. Each platform charges you differently, which may affect the profitability of your various SKUs.

Performance of the channel

You need to know how you’re doing through your various distribution platforms just as much as you need to know how much money you’re making from each sale. For example, if you just look at your total income, you might not notice that your Amazon revenues are significantly lower than your eBay sales.

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Return on investments in marketing

It’s pointless to have a $20 landed cost for a product, spend $10 on ads to get the deal, and then sell the product for $30. In this case, marketing is surely boosting your sales, but it doesn’t mean you’re making any money.

Understand customer perspectives

SKU-level research helps you to gain a deeper understanding of your clients. For example, you may have some barely selling items, but if you aren’t paying attention to a micro level, you won’t notice as quickly.

Understanding your consumers’ purchasing patterns and expectations helps you focus your efforts on the SKUs that are most likely to succeed. If you’re opening a store on BigCommerce, applying an automation app to get insights from the data will bring foundations for successful business strategies. One of these automation apps is Atom8, you can explore it here:

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This app helps your business automate store management tasks and maximize business efficiency.


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