SKU Rationalization: Find the SKUs Quietly Eating Your Profit

The shape of almost every catalog

Rank your SKUs by contribution dollars and the curve is nearly always the same: a short head that generates most of the profit, a long middle that roughly breaks even, and a tail that costs money to keep alive. The tail doesn't look scary on a revenue chart — it looks scary on a contribution chart.

The three-bucket pass

• Kill — negative contribution after ad spend and returns, no strategic role (not a gateway product, not a bundle component). Stop reordering, clear remaining stock, redirect the ad budget.
• Fix — negative or thin contribution with an identifiable cause: price too low, shipping subsidy too generous, one bad supplier cost. Reprice or renegotiate, then re-measure in 60 days.
• Keep — positive contribution or a measurable assist role (appears in first orders of high-LTV customers).

The math that sorts the buckets

The assist check matters: some low-margin SKUs are how customers discover you. Check what fraction of repeat customers' first orders contained the SKU before killing it.

What a pass is worth

Cutting a genuinely negative tail does three things at once: contribution goes up, inventory carrying cost goes down, and ad accounts stop bidding on products that lose money per conversion. It's the rare move that improves the P&L and simplifies operations in the same step.