Previously in this series: PAG and Profitablity
In this second installment of our series on SKUs and your business’s debt strategy, we’ll dive deep into the question of how exactly to spot underperforming SKUs – and what to do about them when you do.
The most efficient way to analyze your SKU performance is through use of a sales dashboard.
There are many options available, and each will suit different preferences, so it’s best to shop around and find one that works for you. Tyler suggests Helium10 and ManageByStats, as both can create detailed data reports per SKU.
Helium10 has a more navigable user interface, but all SKU data must be viewed in the software itself. ManageByStats is slightly less user friendly, but it does offer the ability to download a comprehensive CSV to export as a spreadsheet.
Amazon’s Fee Preview Report
If you don’t use a sales dashboard, or would prefer to manually set up your SKU analysis, you can use Amazon’s Fee Preview Report.
Once you export the report into spreadsheet format, there are a few columns you’ll want to add in order to get a clear picture of your SKUs:
- COGS – the cost of selling your product (not including ad spend)
- Gross Profit and Gross Profit margin – how much you actually make on each SKU after COGS are deducted
- Ad spend – Tyler’s example is estimated at 10%, but you should use your exact ad spend per SKU
- PAG and PAG margin – your Gross Profit minus your ad spend
- Number of product sold – use sales data from Amazon’s Seller Central
Adjusting for SKU Performance
Once you’ve discovered your anemic SKUs, there are a few things you can do.
De-emphasize – If your product is selling well numbers-wise but not producing enough of a margin, you can cut money from your ad budget for this product. Chances are, even if sales drop slightly, your PAG will ultimately be higher.
Redistribute – Any ad budget taken from underperforming SKUs can be redistributed to products selling moderately well. SKUs that have a solid gross profit but could benefit from more customer exposure are top contenders for ad budget redistribution.
Cut – If you just can’t make the numbers work, it may be time to cut your losses and cut your underperforming product. It can be hard to let go of a product you’ve sunk resources into and worked hard to advertise, but in the long run, cutting these products will be better for your business’s profitability.
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