Understanding and optimizing Product Margins
Product Margin determines the profitability of your assortment - analyze each product individually.
Product Margin is one of the most important metrics in e-commerce controlling. It shows how much profit an individual product generates after deducting all variable costs. Unlike Gross Margin, which only considers the purchase price, Product Margin also includes shipping costs, returns, packaging and payment fees.
Portfolio Analysis with the BCG Matrix
The BCG Matrix has proven effective for strategic assortment management. It combines product margin with sales volume and divides products into four categories:
- Stars: High margin, high volume - your profit generators. Invest in marketing and visibility.
- Cash Cows: Solid margin, stable volume - reliably generate contribution without much effort.
- Question Marks: High margin, low volume - potential exists, but marketing is required.
- Dogs: Low margin, low volume - consider discontinuation or radical repositioning.
Create a monthly portfolio matrix of your top 100 products. This quickly identifies which products need attention.
Margin vs. Volume: Finding the Right Balance
A product with 60% margin that sells only 10 times generates less contribution than a product with 20% margin at 100 sales. The art lies in the balance:
- 1 Traffic Products: Low margin but high visibility. They attract customers who then also buy higher-margin products.
- 2 Margin Products: High margin, targeted placement. Cross-selling in the cart maximizes the effect.
- 3 Strategic Bundles: Combine low-margin with high-margin products into attractive sets.
Margin Optimization in Practice
Product margin can be improved in several ways:
- Purchasing Optimization: Better conditions through volume negotiation, alternative suppliers or private labels
- Price Adjustment: Dynamic pricing based on demand, competition and inventory
- Cost Reduction: Cheaper packaging, optimized logistics, return reduction
- Product Mix: Focus on high-margin categories, discontinue margin killers
Always analyze your product margins in context with Inventory Turnover. A product with low margin that turns quickly can be more profitable than a high-margin product sitting in the warehouse for months, tying up capital.