Running a successful e-commerce business involves making strategic decisions about your product lineup. One of the most effective ways to do this is through SKU profitability analysis. At Seller Accountant, we utilize a method known as Keep, Cuddle, or Kill to help e-commerce sellers optimize their inventory and maximize profits.
The Keep, Cuddle, or Kill Method
The Keep, Cuddle, or Kill method is a straightforward approach to evaluate the profitability of each SKU in your inventory. Here’s how it works:
- Keep: These are your star products. They have high margins, low refund rates, and contribute significantly to your bottom line. For example, products with a post-advertising gross profit (PAG) above 35% are considered heroes. These items are essential for your business, and maintaining their stock is critical to sustaining high sales.
- Cuddle: These products show potential but need adjustments to improve profitability. Issues such as high refund rates or inefficient advertising costs often plague these SKUs. You can turn these products into profitable assets by addressing these problems—whether it’s enhancing product quality or refining your marketing strategy. For instance, a product with a PAG of 15% might have a high refund rate due to quality issues, which can be resolved to boost profitability.
- Kill: Products in this category are not performing well and are dragging down your profitability. They usually have low margins, high costs, or other significant issues that cannot be easily fixed. It’s important to discontinue these products to free up resources for more profitable SKUs. An example would be a product with a high cost of goods sold (COGS) and excessive advertising costs, leading to a PAG below 20%.
This method empowers you to make strategic decisions that enhance your inventory’s profitability and efficiency. For additional tools and resources to help you analyze your SKUs, visit our Resources page.
Practical Steps to Implement the Method
To effectively use this method, follow these steps:
- Data Collection: Regularly gather and analyze your SKU data, including COGS, refund rates, advertising costs, and PAG. This data provides a comprehensive view of each product’s performance.
- Analysis: Categorize your SKUs into Keep, Cuddle, or Kill based on their profitability metrics. For Cuddle products, identify the specific issues affecting their performance and develop an action plan to address them.
- Action: Implement strategies to optimize your Cuddle products and make tough decisions about discontinuing Kill products. Ensure that your hero products are always in stock and prioritized.
Real-Life Example
Let’s take a look at a practical example. Imagine you have a premium product, like a custom-branded hat, selling for $99 with excellent margins and low refund rates. This product would fall into the Keep category, as it is highly profitable and essential for your business. Conversely, a coffee mug with a 133% refund rate due to quality issues would need to be Cuddled. You can significantly enhance its profitability by addressing the quality problems or improving product descriptions. On the other hand, a product with high COGS and advertising costs, resulting in a PAG below 20%, might need to be Killed if there’s no feasible way to improve its performance.
Optimize Your Inventory Today
Optimizing your product lineup using the Keep, Cuddle, or Kill method can significantly enhance your profitability and cash flow. By regularly assessing each SKU’s performance and making informed decisions, you can focus on your most profitable products, improve underperforming ones, and eliminate those that are not contributing to your success.
If you’re seeking expert guidance and ecommerce coaching in managing your e-commerce finances, Seller Accountant is here to help. Our team specializes in providing accurate and timely financial insights tailored for e-commerce sellers. Contact us today to learn how we can help you maximize your business’ profitability and ensure sustainable growth.