SKU-level profitability: Why your best-selling product might be losing you money

Most sellers can tell you which channel performs best or which category drives the most revenue. But ask them which products are performing well on specific channels, and the answer often gets hazy.
If you’re not tracking the true cost of each sale, your most popular products could be quietly eating up your margins, and you may not even realize it.

This is where SKU-level profitability can be the savior. By analyzing costs at the product level, you can uncover hidden expenses like mismanaged inventory, overstocking, or excessive shipping fees, identify your true moneymakers, and take control of your margins.

In this article, we’ll explore how SKU-level profitability works, why it’s crucial for your ecommerce business, and how Webgility can automate the process to provide real-time insights into the true performance of every product you sell.

By the end, you’ll have a clear roadmap to optimize your pricing and inventory strategies, helping you maximize not only revenue but also profitability.

What is SKU-Level Profitability and why it matters

Most ecommerce businesses can tell you their channel-level profitability. They know whether Amazon or Shopify is more profitable overall. Some can even break it down by category, maybe "Apparel" is doing better than "Home Goods." But that's not enough.

True profitability analysis requires moving beyond channel or category reporting. The goal is one SKU, one truth.

To find your true profit, you must be able to track all of these components for each SKU:

1. Final sale price

This isn’t your list price; it’s the actual revenue you earn after all discounts are applied. For example, if you offer a 30% discount on a $50 product, your HOLIDAY30 code means that a $50 sweater actually brings in only $35 in revenue.

2. Landed COGS

This isn't just the wholesale price you paid your supplier. It's the product cost plus all associated freight, duties, customs fees, and any rush shipping charges you incurred to get inventory in on time for the holiday season.

3. Marketplace and payment fees

The percentage-based and fixed fees for every transaction vary wildly by platform. Amazon's referral fees differ by category. FBA fees depend on size and weight. Shopify Payments takes its cut. PayPal adds another layer. These fees can range from 10% to 30% of your sale price

4. Fulfillment and shipping costs

They include pick and pack labor, packaging materials, carrier base rates, residential surcharges, dimensional weight adjustments, fuel surcharges, and storage fees if you're using FBA or a 3PL. That "free shipping" you offered? It's definitely not free for you.

5. The cost of returns

You must factor in all non-refundable processing fees, return shipping costs, and any product write-downs (for damaged or unsellable items) when assessing profitability. Calculate this as:

Formula:

(Return Rate %) × (Nonrefundable Fees + Product Write-Downs + Return Shipping

Example:

If 30% of your sweaters are returned and each return costs you $12 in fees and lost product value, your built-in return cost per sale is: 0.30 × $12 = $3.60

So, for every unit sold, you’re effectively losing $3.60 to returns even before accounting for other operational costs.

6. Attributed marketing cost

For a complete view from COGS to customer acquisition, factor in your ad spend per conversion. If you spent $2,000 on Facebook ads that generated 500 orders, that's $4 per order in marketing costs.

The challenge: Manual tracking is a nightmare

Manually tracking this level of detail is unsustainable. When you're processing hundreds or thousands of orders across multiple channels, calculating the true profit for each SKU in a spreadsheet is next to impossible.

The solution: Automation with Webgility

For solopreneurs and multi-channel sellers, an ecommerce automation platform like Webgility becomes crucial. It allows them to automatically sync and itemize every single cost component against the specific SKU in real-time.

By integrating data from various sales channels, payment processors, and fulfillment centers, Webgility provides a comprehensive view of each SKU's profitability. This enables businesses to make data-driven decisions, optimize pricing strategies, and identify underperforming products that may need to be discontinued or improved.

The hidden problem with category-level reporting

One of the biggest mistakes ecommerce businesses make is looking at profitability by category instead of by product. The sole reason is that your sales channels and accounting software make it simple to pull data for “Apparel” or “Home Decor,” so that’s what most sellers stick with.

But this approach hides what’s driving actual margins.

When you lump all sales, fees, and shipping costs into one big category, you can see the total, but not what’s inside. Some products are driving healthy profits, while others are quietly eating into your margins, and you’d never know it. This is why category-level reporting does not let you distinguish the product winners from the losers.

Here’s what often gets lost when you don’t zoom in to the SKU level:

• Different fees: Even within the same category, marketplace and online stores’ fees can vary based on size, weight, or listing type
• Uneven shipping costs: A bulky sweater and a lightweight scarf might both sit under “Apparel,” but one could cost three times more to ship
• High-return items: Certain products have much higher return rates that drag down category-wide profitability
• Storage costs: Slow-moving inventory racks up storage fees that disappear in a category average
  Uneven discounting: Promotions or ad spend may boost revenue, but quietly crush margins for certain SKUs

When you track only at the category-level, you’re celebrating averages, not accuracy.

With Webgility, you can automatically sync every single fee, shipping charge, and return cost directly to the individual SKU. It helps you track SKU-level profitability and gives you the visibility to see which products actually make money, which drain your cash flow, and where to focus your efforts to grow profitably.

Bonus read: 4 Benefits of Inventory Management Automation for Growing Sellers

Why your bestseller might be bleeding profit

Let’s set the scene. Your "Apparel" category looks profitable overall. The numbers are impressive, driven by the massive sales volume of the "Red Holiday Sweater." But when you look closer, the story changes.

Formula for calculating your true margins (With example)

You don’t need to be an accountant to figure out which of your products are truly profitable. Here’s a clear framework (with an example) to help you understand how to calculate net profit per SKU (after all the hidden costs are considered).

The reality: Without SKU-level profitability analysis (granular-level), you’re running your business on volume metrics rather than profit metrics, and you might be pouring marketing or inventory dollars into the wrong products. 

Warning signs your top seller is actually losing money

Ask yourself if your bestseller has any of these traits:

☐ Sales volume is high, but bank deposits (cash flow) feel disappointingly low.
☐ Returns on this SKU exceed 20%.
☐ You're running frequent promotions just to move inventory.
☐ You can't explain the exact margin after all fees.
☐ Your accounting software and sales channels are telling two different stories (a problem Webgility solves by creating a single source of truth).
☐ Storage fees are accumulating on slow-moving variations of your bestseller.

How to identify SKU-level profitability: Step-by-step plan using Webgility

To uncover SKU-level profitability, Webgility Analytics offers a real-time view of how each product performs across every connected sales channel. The tool consolidates sales, fees, and COGS data into detailed financial snapshots, enabling you to isolate unprofitable bestsellers and recover lost margin through data-driven adjustments.

Step 1: Ensure accurate SKU- and cost-data integration

• Map each SKU in your ecommerce / sales channels to the corresponding product in your accounting system (e.g., in QuickBooks Online) so that cost data flows
• Ensure COGS (Cost of Goods Sold) values are correctly entered for each SKU. Webgility notes that for QuickBooks Online, COGS values must be present for the sync
• Connect all your sales channels (marketplaces, own store, etc) to Webgility Analytics so revenue, refunds, shipping, and fees - every transaction is captured
• Verify that shipping, processing, and selling fees are being captured — Webgility uses these in its “Cost of Sales (COS)” calculation

Step 2: Access profitability reports

In your Webgility Online account, go to the Analytics tab and select Profitability. This Webgility’s dashboard updates nightly and syncs all connected channel data (Amazon, Shopify, eBay, etc.) with your accounting system to reflect true revenue, expenses, and margins.​

Step 3: Filter by SKU or channel

Use the Sales channel and Date range filters to hone in on a specific product or timeframe. While the default view shows all channels, narrowing down helps you pinpoint SKUs draining profit in certain marketplaces or during specific seasons.​

Step 4: Review the financial snapshot

This section displays a pivot table summarizing each income and expense component:

• Revenue: Gross sales minus refunds
• Refunds: Shown as negative values
• COGS (Cost of Goods Sold): Synced from QuickBooks for each item
• COS (Cost of Sales): Includes processor, selling, and advertising fees
• Gross Profit and Net Profit: Revealing your true margins after all costs and taxes​

Export the snapshot as a CSV or Excel file to perform SKU-level margin analysis externally or merge with inventory data for more granular tracking.

Step 5: Analyze performance by channel

This secondary view helps identify where your SKUs perform best (or worst). A profitable SKU on one marketplace might lose margin on another once selling and shipping fees are factored in. Compare Revenue, COGS, COS, and Net Profit by channel to inform repricing or ad spend cuts.​

Step 6: Adjust and recover margin

Armed with SKU-level insights, you can:

• Recalculate item pricing to cover transaction and fulfillment costs.
• Optimize shipping strategies or packaging costs.
• Reallocate ad budgets toward SKUs or channels with higher profit ratios.
• Sync changes back to QuickBooks or your ecommerce platform for accurate future reporting.​

Step 7: Monitor and iterate

Since Webgility updates data nightly, review SKU profitability weekly or monthly to spot new leaks early. Regular reconciliation ensures your “best sellers” remain your most profitable sellers, not silent profit drainers.

Step 8: Communicate and align internal teams with SKU-profitability insights

• Share a summarized “Profitability by SKU” dashboard or report with relevant teams
• Link SKU-level margin data to decisions: e.g., whether to invest in advertising, whether to discount, whether to reorder / phase out
• Use SKU‐level insights to decide: which SKUs deserve more investment, and which ones justify reduction/discontinuation

This recovery plan, backed by SKU-level profit visibility and the automation power of Webgility, gives you a structured path back to margin health and growth.

Stop chasing revenue, start building profit!

You’ve learned why focusing on revenue alone can be a trap, and how true profitability lies in analyzing each product at the SKU level. From uncovering hidden costs, avoiding blanket category-level reports that mislead, to running a recovery plan that identifies winners and losers, you now have the framework.

With Webgility, you’ll shift from guesswork to clarity: automated tracking, real-time dashboards, and actionable AI-driven insights reveal which products fund your growth and which hurt your margins.

Don’t let your bestseller become your biggest mistake. Start using Webgility today and see exactly where your profit really comes from.

FAQs

What is the purpose of SKU in ecommerce?

An SKU is a unique code that helps identify and track each product variation in your inventory. Typically made up of 8–10 letters and numbers, SKUs help sellers monitor stock levels, manage variations like color or size, and streamline fulfillment.

What is SKU-level profitability analysis?

SKU-level profitability is the practice of measuring the net profit for each individual stock-keeping unit after accounting for all related costs (COGS, fees, shipping, returns, marketing, etc).

How do I calculate true profitability per SKU?

To calculate the number of SKUs in your inventory, count all unique product variations available in different colors, sizes, or configurations, creating new SKUs. Tools like Webgility can automatically track and sync these SKUs across all your sales channels for accurate reporting and profitability analysis in your accounting software.