Identify Unprofitable Amazon SKUs Destroying Your Margins

Discover which products are costing you money and make data-driven decisions about portfolio rationalisation.

Most Amazon vendors are unknowingly subsidising loss-making products with profits from star performers. When chargebacks, shortages, advertising costs, and returns are properly allocated to individual SKUs, many products reveal negative contribution margins. These unprofitable ASINs destroy portfolio profitability, yet most Finance Directors lack the granular visibility to identify them. Sales volume masks profitability issues until detailed product-level analysis reveals the true cost of carrying unprofitable inventory.

Our Unprofitable SKU Identification service uses forensic cost analysis to identify every negative-margin product in your catalogue. We calculate true profitability per ASIN, highlight loss-makers, quantify their margin impact, and provide strategic recommendations for each unprofitable product: exit, reprice, cost reduction, or operational improvement. This targeted analysis enables confident portfolio rationalisation decisions that eliminate margin drains.

For Finance Directors managing large product portfolios, this surgical identification of loss-makers creates immediate margin recovery opportunities of typically 3-8% through strategic SKU exits.

Key Takeaways

Forensic Cost Attribution: We identify unprofitable SKUs through rigorous cost allocation that includes all vendor deductions, advertising waste, high return rates, and operational costs. This forensic approach reveals hidden loss-makers that appear profitable on gross revenue analysis but destroy margin once total costs are attributed.

Quantified Margin Impact: Beyond simply flagging unprofitable products, we quantify the exact margin destruction each loss-making SKU creates. This enables prioritisation: exit the products causing most margin damage first whilst evaluating whether marginal loss-makers can be recovered through operational improvements or repricing.

Root Cause Analysis: For each unprofitable SKU, we identify why it loses money: excessive chargebacks from operational issues, advertising costs exceeding contribution margin, high return rates destroying unit economics, or fundamentally unsustainable pricing. This root cause understanding informs whether the product can be saved or should be exited.

Strategic Exit Planning: We provide detailed recommendations for managing unprofitable SKU exits including inventory liquidation strategies, customer communication approaches, and alternative product recommendations. This structured exit planning minimises customer disruption whilst accelerating margin recovery from portfolio rationalisation.

Opportunity Cost Visibility: Unprofitable SKUs consume working capital, warehouse space, operational focus, and management attention that could be redirected to profitable products. We quantify these opportunity costs, demonstrating the full strategic benefit of exiting loss-makers beyond simple margin recovery.

The Problem

Invisible Margin Destruction: Loss-making products silently destroy profitability whilst appearing successful on revenue dashboards. Vendors focus on top-line sales growth, missing that 20-30% of catalogue may operate at negative margins. This invisible margin destruction can consume 30-50% of profits generated by successful products.

Working Capital Waste: Unprofitable SKUs tie up valuable working capital in inventory that generates losses rather than profits. Finance Directors unknowingly invest cash in products that destroy value with every unit sold. This working capital could be redeployed to scale profitable products or reduce debt, but remains trapped in loss-making inventory.

Operational Resource Drain: Loss-making products consume disproportionate operational resources: they often generate more chargebacks, returns, and customer service issues than profitable products. Operations teams spend time managing problem products rather than optimising star performers, creating hidden operational costs beyond direct product losses.

Strategic Misdirection: Without clear visibility into which products are unprofitable, product development and marketing investment often amplify problems. Vendors launch line extensions of loss-making products, advertise negative-margin SKUs to drive "growth", and negotiate supplier contracts that worsen unprofitable product economics.

Our Process

Step 1: Complete Profitability Calculation

We calculate true net profit for every SKU in your catalogue, allocating all costs including vendor chargebacks, shortages, advertising spend, returns, and operational overhead. This comprehensive analysis reveals the complete profitability picture across your entire product portfolio.

Step 2: Loss-Maker Identification & Quantification

We identify all negative-margin SKUs and quantify the exact margin destruction each creates annually. Products are ranked by margin impact, enabling prioritisation of which loss-makers to address first. We segment unprofitable products by severity: catastrophic losses requiring immediate exit versus marginal losses that might be recoverable.

Step 3: Root Cause Analysis

For each unprofitable SKU, we diagnose why it loses money through detailed cost driver analysis. We examine operational issues driving chargebacks, advertising efficiency problems, pricing sustainability, return rate causes, and structural economic issues. This diagnostic reveals whether products can be saved through operational improvements or require strategic exit.

Step 4: Strategic Recommendations & Exit Planning

We provide specific recommendations for each unprofitable SKU: immediate exit for irredeemable loss-makers, repricing strategies for products with pricing issues, operational improvements for products with correctable cost problems, or supplier renegotiation for products with COGS challenges. For products requiring exit, we develop structured liquidation and customer transition plans.