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eCommerce growth
Jan 30, 2023

Why is SKU performance important for enhancing business profitability?

Why is SKU performance important for enhancing business profitability?

Ecommerce tracking can be challenging to stand out and thrive in a competitive marketplace. One of the vital components to do so is to get the relevant items presented to your clients online, but how can you accomplish that? Do you have any method of assessing and distinguishing the performing and non-performing products in your online or offline sales channel?

The answer is yes! You heard it right. eCommerce tracking at the SKU level is the magic mantra to understand each product's performance. It enables you to make well-informed decisions about non-performing products. Businesses must closely monitor their SKUs to understand stock levels, develop bundled offers, and establish reorder points. In this article, we'll take a closer look at what SKU performance is, why it's crucial to analyze your SKUs, and how it may help you manage your inventory better.

What is SKU Profitability reporting?

SKU profitability reporting allows retailers to assess how one product performs compared to others. Many companies make the costly mistake of concentrating solely on increasing sales, which can result in poor management, excessive inventories, and extortionate shipping or service fees that can drive you out of business even if your sales targets are being fulfilled.

The use of Data Analytics can be beneficial for reporting and can also assist you in distinguishing between multiple variants of the same product. For instance, if you sell products with the same name that come in different sizes or quantities but have different SKU numbers. Alternatively, if you sell digital memberships, you may have a separate SKU for different lengths of membership access, even if they are essentially the same product and have identical names.

Most eCommerce companies that have been in operation for some time might profit from routinely reviewing their present product offering. By taking the time, one can make better decisions. When reevaluating, they can choose whether or not to withdraw products or even introduce new ones to accommodate customer demand, leading to what is known as SKU Proliferation (i.e., the addition of new SKUs).

Steps To Determine SKU Profitability

When your company grows, keeping track of individual goods might be tricky. You might ignore the potential losses from outdated, seasonal, expired, and slow-moving merchandise by concentrating only on what's succeeding.

You may quickly access your SKU Profitability Report to see how your products perform and estimate your profit for a given period. This report illustrates SKU sales, margins, and profits over a specified period. You can choose to view your results for the most recent week, year, or any other time frame.

Customizing the report is simple. You can display all of your SKUs or just those that have generated sales, as well as just the products or sales generated through other channels and shipped by Amazon.

As an alternative, it might also show that a particular SKU is moving very slowly. This implies that you are probably losing money on inventory holding expenses for this specific SKU while receiving no revenue from it. Discontinuing the SKU in this situation would be wise as it would allow you to manage your inventory holding expenses better while making available room and resources for products that sell better.

It's important to know which products are the most popular. By Ecommerce Tracking, you can improve online sales, enhance customer loyalty, increase conversions, and strategically draw customers' attention to other products on your site.

How to boost SKU performance with appropriate SKU analysis?

SKU analysis and reporting help enhance productivity by determining what stock to keep, what to work on, and what to discard. Numerous interpretations can be made on data; while some methods rely only on observation and analysis, others include more intricate formulas.

SKU Performance analysis entails calculating the profitability of the products in your inventory based on parameters including inventory holding costs, procurement expenses, fulfilment costs, customer acquisition costs, and historical sales data. This makes it easier for you to decide whether to retain particular SKUs in stock or discontinue them.

For instance, you might observe that a particular SKU sells adequately. But because it's a huge item, it takes up a lot of storage space in your warehouse. As a result, your SKU analysis procedure will enable you to determine if the revenue generated by this SKU justifies the expense of storing it.

Why should businesses track SKU profitability?

A clear understanding of the big picture helps you understand business performance and its journey. However, you shouldn't ignore the little details in favor of the bigger picture. Different products have varying selling and profit potentials. If you don't look at the specifics, you won't be able to make the informed decisions required to boost profitability.

The basic KPIs of SKU Profitability

  • Cost Analysis

When you sell your products on several platforms, it might be challenging to determine how much money you're making. The profitability of your multiple SKUs may be impacted by the different fees each platform levies on you.

  • Performance of the channel

Just as important as knowing how much profit you're making from each sale is how well you're performing on your various distribution channels. For instance, you might not see that your Shopify sales are substantially more than your Amazon revenues if you only look at your entire income.

  • Return on investments in marketing

It makes no sense to have a product with a 50rs landing cost, spend 10 rs on advertisements to close the deal, and then sell the product for 60rs. In this instance, marketing undoubtedly increases your sales, but that doesn't imply that you are making any money.

  • Understand customer perspectives

Understanding the buying habits and expectations of your customers enables you to concentrate your resources on the SKUs that are most likely to be profitable and fosters a deeper understanding of your customers.

In the modern business world, where the customer is king and diversity is anticipated, SKU performance reporting is a natural component of most firms as operations grow.

Keep in mind that SKU performance is not always bad: It can result in more revenue for distributors as they know which SKUs are fast or slow moving and can accordingly stockpile best-selling items to satisfy more orders. It can result in improved customer satisfaction as customers have proven they prefer to place orders for all their things from a single merchant if available.

Proactive measures and monitoring of your SKUs will enable you to take gradual corrective action, if necessary, as your operation develops. This area can influence operations, customer service, and ultimately the bottom line.

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