Ask a growing e-commerce business which products matter most and it will usually list its best sellers by revenue. Revenue is the wrong lens. A product can sell well and still lose money after marketplace fees, advertising, returns and storage. Another can sell modestly and quietly carry the profit of the whole range.
Step 1: contribution margin per product
For each product or variant, over the last 6 to 12 months, calculate:
| Line | Includes |
|---|---|
| Net revenue | Sales after discounts, coupons and refunds |
| − Product cost | Purchase cost, inbound freight, duty |
| − Channel fees | Marketplace referral and fulfilment fees, payment fees |
| − Advertising | Spend attributed to the product, or allocated by sales share |
| − Returns and storage | Return handling, write-offs, storage and long-term storage fees |
| = Contribution margin | What the product contributes to fixed costs and profit |
Precision matters less than consistency. Use the same allocation rules for every product, and write them down.
Step 2: add a second dimension
Plot each product on two axes: contribution margin per unit (or margin percentage) and sales velocity. Velocity can be units per week or, better, the trend of the last 12 weeks against the previous 12.
Step 3: read the four quadrants
| Quadrant | Signal | Typical action |
|---|---|---|
| Grow | High margin, high or rising velocity | Protect stock availability, invest in visibility, extend variants |
| Fix | Low margin, high velocity | Review price, pack size, fees, advertising and cost |
| Hold | High margin, low velocity | Keep lean stock; test whether visibility is the constraint |
| Retire | Low margin, low velocity | Sell through, stop reordering, remove variants |
Step 4: check before acting
- Halo effects. Some low-margin products bring in customers who buy others. Check basket and repeat-purchase data before retiring them.
- Life stage. New products often sit in “Fix” for their first months while reviews accumulate. Set a review date rather than judging too early.
- Stock age. Retiring a product with six months of stock needs a sell-through plan, not just a decision.
What usually happens. The “Fix” quadrant tends to hold the largest opportunity: products customers already want, where margin is lost to fixable causes such as pack size, fee tier or untargeted advertising.
Make it a rhythm
A portfolio map is most useful when it is refreshed monthly or quarterly with the same rules. Movement between quadrants becomes the signal: a product sliding from Grow towards Fix is an early warning on price, competition or cost.
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