Not every product earns its keep. Analyzing product profitability helps you focus inventory, pricing, and marketing on what actually makes money. Here’s a simple process and a free profitability tool to do it.
1. Include All Costs
True profitability is revenue minus all costs: cost of goods sold (COGS), shipping, fulfillment (pick, pack, ship), and returns. Leaving any of these out overstates profit and can lead to promoting loss-making products.
2. Calculate Net Profit and Margin
For each product, compute net profit per unit (revenue − all costs) and margin % (net profit ÷ revenue × 100). Compare across your catalog to spot high-margin winners and low-margin or negative-margin losers.
3. Use Break-Even as a Floor
Break-even is the volume at which total revenue equals total cost. Products that barely break even at normal volume are risky; a dip in demand or a cost increase can push them into the red. Use break-even to decide minimum order quantities and discount limits.
4. Act on the Results
High-margin products: promote more, consider price increases, bundle with slower movers. Low-margin or loss-making products: cut costs, raise prices, improve quality, or discontinue. Our Product Profitability Analyzer does the math for you; for more profitability tools (LTV, pricing, etc.), see the tools hub.