$StoreWorth
2.116 minFree preview

Know your true unit economics

Work out the real contribution margin of every product after product cost, shipping, fees and returns.

Most owners know their overall margin. Few know which products actually make money once every cost is counted. Buyers will work it out in due diligence, so it is better that you find the answer first.

Contribution margin per product

For each product or variant, calculate:

Contribution margin = selling price − product cost − inbound freight − packaging − pick and pack − outbound shipping (net of what the customer pays) − payment fees − expected refunds

Express it both in dollars and as a percentage of the selling price.

What you will usually find

  • A small number of products produce most of the profit.
  • Some popular products barely break even once free shipping and returns are counted.
  • Discounts and bundles quietly move margin from good products to bad ones.

What to do with it

Sort products by contribution margin in dollars. For the bottom group, you have three choices: raise the price, cut the cost, or stop promoting the product. Do not delete products that bring in new customers who go on to buy more profitable items; check this before you act.

Keep the spreadsheet. A product-level margin table is one of the documents serious buyers ask for, and having it ready signals that you run the business with discipline.

Steps

  1. 1
    Export product sales
    Export the last 12 months of sales by product and variant from Shopify.
  2. 2
    Add every cost
    Fill in product cost, freight, packaging, fulfilment, shipping, fees and refund rate for each line.
  3. 3
    Rank by contribution
    Sort by contribution margin in dollars and mark the bottom 20%.
  4. 4
    Decide an action per product
    For each low-margin product: reprice, re-cost, or stop promoting.

Tools

ToolCategoryWhy
BeProfit or TrueProfitProfit analyticsCalculate product-level profit from Shopify data with costs and fees included.
LifetimelyProfit analyticsCombines product margins with customer lifetime value.
Shopify cost per item fieldShopifyEnter product costs so Shopify's own profit reports become accurate.

Checklist

  • I have a product-level contribution margin sheet
  • Shipping, fees and refunds are included, not just product cost
  • I know my bottom 20% of products by margin
  • Every low-margin product has a decided action

Join the course to tick these off and track your progress.