How to Find the SKUs Quietly Losing You Money

Most DTC dashboards show revenue by SKU. Revenue is the wrong metric for this diagnosis. A SKU generating $40,000 per month in revenue can be costing you money if the variable cost stack is high enough. Finding these SKUs before they scale is one of the highest-leverage things you can do as an operator.

The four costs that eat SKU margin

• COGS (landed): the unit cost plus freight, duty, and inbound handling. If you buy from overseas, landed COGS can be 20-30% higher than the invoice price.
• Outbound shipping: actual carrier cost per shipment. This varies by product weight/dimensions and destination. Heavy or oversized items pay a significant freight premium.
• Platform fees: Shopify transaction fees (0.5-2% depending on plan), payment processing (~2.9% + $0.30 per order on Shopify Payments), and any marketplace fees if you sell through additional channels.
• Ad cost per order: ad spend attributed to orders of that SKU. This is the one most brands miss entirely because ad cost is usually tracked at the campaign level, not the product level.

How to build a per-SKU P&L

The calculation at the SKU level: Contribution Margin Per Order = Selling Price - COGS - Shipping Cost - Fees - Ad Cost Per Order

The hardest piece to get right is the ad cost per order at the SKU level, since most ad platforms report at the campaign level. You can approximate this by dividing campaign spend by orders for SKUs in that campaign, or by using UTM parameters and order-level attribution to map ad spend to specific products.

What to look for

• Negative contribution margin: the SKU is losing money on every sale. This happens most often on low-price products with heavy shipping or high ad cost, or on products you are discounting heavily in bundles.
• Contribution margin below 20%: technically profitable but so thin that any shipping cost increase, ad CPM spike, or return rate uptick tips it negative.
• High revenue, low margin: a top-selling SKU might generate the most revenue in the catalog while being the least profitable per order. It is consuming ad budget and shipping capacity that could go to higher-margin SKUs.
• Margin varying by channel: the same SKU might be profitable on Google (lower CPC) and unprofitable on Meta (higher CPM and longer attribution window).

Common culprits

• Heavy or large products: shipping cost scales with weight and dimensions. A product that sells for $45 but weighs 4kg can easily have $12-18 in shipping cost, which destroys margin.
• Products in aggressive bundles or discounts: if a bundle is priced at a 25% discount, every product in it takes a margin hit. Calculate bundle contribution margin separately from standalone pricing.
• Products with high return rates: returns erode net revenue and add reverse logistics cost. A SKU with 15% return rate needs higher gross margin to break even than one with 3% return rate.
• Entry-price SKUs used as acquisition products: some brands deliberately run low-margin products to acquire customers, betting on LTV. The risk is that the bet does not pay off and you scale a loss-leader without the repeat purchase to justify it.

What to do when you find a losing SKU

• Pause paid advertising to it immediately. If the SKU is margin-negative with ad cost, stopping ads cuts the loss. Organic sales of a thin-margin product may still be acceptable.
• Reprice or repackage: if the SKU has strong demand but weak margin, test a price increase. Many DTC brands are underpriced relative to what the market will bear.
• Reduce variable costs: renegotiate supplier pricing for higher volume, switch carriers for better dimensional weight pricing, or move to a lower-fee payment processor.
• Retire the SKU: if a product consistently fails the margin test and there is no clear path to fixing the unit economics, removing it from active promotion frees budget for better-performing SKUs.

The profit calculator lets you run these numbers quickly: enter your selling price, COGS, shipping, and fee structure and it will show contribution margin at different ad cost and ROAS scenarios. Use it to test whether a price increase or COGS reduction makes the SKU viable.