Your Best-Selling Product Might Be Losing You Money: How to Find True Profit by SKU, Order, and Channel
- Jacob Curtis
- Oct 13
- 5 min read
The Profit Illusion Hiding in Plain Sight
Your Shopify dashboard shows strong revenue, your best-selling jacket is flying off the shelves, and your ad metrics look solid. On paper, everything seems to be working.
But here’s the hard truth: your top seller might actually be draining your profit.
Most outdoor eCommerce brands rely on surface-level data — gross sales, average order value, or even margin percentages — without factoring in the full cost stack that sits below the surface. Once you account for ad spend, payment fees, shipping, returns, and marketplace commissions, that “winning” SKU may not be so winning after all.
That’s why understanding true contribution margin — your real profit per SKU, order, and channel — is one of the most important financial insights you can uncover.
The Difference Between Revenue and Real Profit
Revenue tells you what’s coming in.
Contribution margin tells you what’s left after variable costs.
Here’s the simple formula:
Contribution Margin = Sales – Variable Costs
Variable costs include anything that changes with each order: shipping, packaging, payment processing, advertising, and returns.
Let’s put that in perspective.
If your $100 sale costs $40 in product cost, $20 in ads, $10 in shipping, $5 in payment fees, and $5 in returns — that’s $80 in total variable costs.
You’re left with $20 in contribution margin, or 20%.
That 20% is what’s truly available to cover fixed expenses like rent, salaries, and taxes — and ultimately, to drive profit.
Without isolating this number by SKU and sales channel, you’re flying blind.
The “Hero Product” Trap
Here’s a fictional but realistic example drawn from the kinds of situations we see every day at Curtis Accounting Solutions.
An outdoor apparel brand brings in roughly $1.2 million in annual sales. Their “hero” product — a premium insulated jacket — dominates their Shopify store. It sells thousands of units each year and accounts for nearly 40% of total revenue.
But when we analyze the true contribution margin, we find a surprise:
High return rates (especially post-holiday)
Free shipping and free exchanges on all orders
Heavy ad spend driving traffic to the jacket’s landing page
After factoring in these hidden costs, the jacket loses $18 per sale. Meanwhile, a smaller accessory line quietly earns $12 profit per order — no ads required.
It’s a humbling discovery. But it’s also liberating, because now the brand knows where to focus.
How to Uncover Your True Profit by SKU and Channel
Knowing which products and channels actually make money gives you control — not just over profit, but over peace of mind.
Here’s how to start:
1. Segment Your Sales Channels
Separate your data by platform — Shopify DTC, Amazon, and wholesale.
Each channel carries unique fees and fulfillment costs.
Example: Amazon’s referral and fulfillment fees can take 15–20% off the top, while Shopify orders might have higher ad costs but better repeat purchase rates.
Use your accounting software (QuickBooks or Xero) to tag transactions by channel, so you can see true contribution margin across each.
2. Allocate Ad Spend Properly
Many brands lump all advertising into one bucket, masking which channels actually perform.
Divide your ad spend based on where it originated. For instance, if 70% of ad clicks drive Shopify sales and 30% drive Amazon traffic, split the costs accordingly.
When you do this, you’ll often find that your “cheaper” channels — like organic search, email marketing, or wholesale — quietly deliver higher profit.
3. Include Fulfillment and Return Costs
Shipping, packaging, and returns are part of the true cost of every order.
Calculate your average cost per order for each channel, not just as a total expense.
Pro tip: Shopify analytics, ShipStation, or your fulfillment provider can help you pull accurate per-order shipping data.
4. Recalculate Your Contribution Margin
Now that you’ve categorized your variable costs, revisit the formula:
(Sales – Variable Costs) ÷ Sales = Contribution Margin %
Compare this across your top 10 SKUs and your top 3 channels.
You might discover that your best-seller on Amazon barely breaks even, while a slower-moving product on Shopify quietly sustains your bottom line.
5. Adjust Your Focus — and Your Cash Flow
Once you identify your highest-margin products and channels, shift your focus:
Reallocate ad spend toward higher-margin SKUs.
Reduce inventory purchases for low-margin products.
Set your Profit First allocations based on true contribution margin, not revenue.
You don’t need more sales to grow profit. You need better visibility.
Why True Profit Visibility Matters for Outdoor Brands
Outdoor recreation and sporting goods brands face unique challenges: seasonal sales, bulky inventory, and high shipping costs.
When these factors go unchecked, they distort profitability across your catalog.
For example:
Seasonality: Summer camping gear sells fast in June, but cash needs to last through October.
Returns: Fit-sensitive items like jackets and boots often have return rates over 20%.
Ad competition: Paid ads in the outdoor niche spike during Q4, eroding margin.
Tracking profit by SKU and channel allows you to see through the noise — so you’re not scaling the wrong mountain.
Using Profit First to Turn Visibility into Control
Once you’ve uncovered your true margins, the next step is to align your cash with reality.
The Profit First method, tailored for inventory-based brands, gives you a structure to separate cash into clear categories — profit, owner’s pay, taxes, operating expenses, and inventory.
By basing your allocations on true profit (not just top-line sales), you prevent “phantom cash flow” — that deceptive feeling of having money in the bank when it’s already spoken for.
Curtis Accounting Solutions helps Shopify-based outdoor brands implement this system so that every dollar has a job, and every job serves a purpose.
A Quick Self-Check: Are You Really Profitable?
Here’s a simple checklist to gauge your visibility:
I know my contribution margin by SKU.
I’ve segmented sales by channel (Shopify, Amazon, wholesale).
My ad spend is allocated by channel performance.
I include shipping, returns, and fees in product-level profitability.
My Profit First allocations reflect true profit, not just revenue.
If you can’t check all of these boxes yet — you’re not alone. Most outdoor eCommerce owners start here. But clarity is closer than you think.
FAQ
What’s the difference between gross margin and contribution margin?
Gross margin only subtracts product cost (COGS) from sales. Contribution margin subtracts all variable costs — including shipping, ads, and fees — to reveal true profitability.
How often should I review contribution margin?
At least quarterly, but monthly if your business runs multiple channels or seasonal campaigns. Profit leaks can appear quickly when ad costs rise or return rates spike.
Can Shopify track profit by SKU automatically?
Shopify provides gross profit estimates, but they don’t include ad spend or fulfillment costs. You’ll need to export data or connect it to your accounting software for full accuracy.
What if some products are intentionally low margin (like loss leaders)?
That’s fine — as long as you know it. Track those products separately and ensure they truly drive profitable add-on purchases or lifetime value.
How does this tie into Profit First?
Once you know your contribution margin, you can set Profit First allocations that match reality. It ensures your cash flow system reflects true profitability, not guesswork.
The Takeaway
You can’t manage what you can’t see.
When you uncover your true profit by SKU, order, and channel, you gain the clarity to make smarter marketing decisions, scale the right products, and protect your cash flow — all without chasing more sales.
This is what financial freedom looks like for inventory-based brands: confidence, clarity, and control.
Ready to Find Your True Profit Map?
You don’t have to figure this out alone.
Curtis Accounting Solutions helps outdoor eCommerce brands bridge the gap between data and decision — so you can stop guessing and start growing with confidence.
Discover which products and channels are truly driving your profit — and finally build a business that works for you year-round.
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