What Happened When We Actually Cut the SKUs

Hey there,

Last week I told you about the outdoor products brand where I learned the SKU lesson the hard way. We had 60+ products. A third of them were losing money. I was staring at a spreadsheet feeling sick.

Today I want to tell you what happened next.

Because knowing you have a problem is one thing. Actually doing something about it is another.

Once we had the contribution margin data on every SKU, we knew we had to make cuts. But here's what I learned: you can't make this decision alone. And you can't make it in a silo.

We pulled everyone into the room. Marketing. Finance. Operations. Everyone who touched the product catalog.

And we put the numbers on the table. No spin. No hiding. Just the reality of what each product was actually doing to the business.

That meeting was uncomfortable.

Marketing looked at the list and said, "Wait. Some of these are in our best campaigns. Our ROAS looks great on these."

And I had to explain: ROAS is based on revenue, not profit. A 4x ROAS on a product with negative contribution margin means we're paying to lose money faster. The better the campaign performs, the more we lose.

That was a hard conversation. Nobody wants to hear that the campaign they're proud of is actually hurting the business.

Finance ran the scenarios. If we cut these products, we lose this much revenue. But we save this much in costs. Net impact: more profitable, not less.

Operations was honestly relieved. Fewer SKUs meant fewer suppliers to manage, fewer reorder points to track, fewer things to go wrong. The complexity reduction alone was worth it.

By the end of that meeting, everyone was aligned. Not excited. Nobody loves killing products. But aligned.

We agreed on the criteria: Kill anything below 10% contribution margin with no clear path to fix. Kill anything that hadn't moved more than 50 units in 6 months. Fix products between 10-25% if there was a specific lever we could pull. Scale everything above 25% with proven demand.

Then we actually had to do it.

This is the part nobody talks about. The actual execution.

We cut about 40% of the catalog. Gone.

Some of those products? I loved them. The team loved them. Customers occasionally raved about them. But they weren't making money. And every hour we spent managing them was an hour we couldn't spend on the products that actually mattered.

The hardest part wasn't the decision. It was letting go of the story I'd been telling myself about those products. "But this one has so much potential." "But we already invested so much in that one." "But customers love this one."

None of that mattered. The math was the math.

This is exactly the conversation I’m having with Andrew Faris in our upcoming workshop.

It’s called “Your Best Seller Is Lying to You”, and we’re digging into why that high-ROAS campaign might actually be your biggest problem.

I’ll cover the margin teardown (the methodology I just described). Andrew will show you what to do with that information on the growth side: how to recalibrate media buying, how to structure creative strategy by margin tier, how to hold your agency accountable to metrics that actually matter.

Because Marketing looking at that list and saying “but our ROAS looks great”? That’s the conversation that has to change.

We ran clearance sales. "Everything must go" energy. Steep discounts because the goal wasn't to make money on these products anymore. It was to recover whatever cash we could and move on.

Marketing had to rebuild their campaigns. Some of their best-performing ad sets (by ROAS) were built around products we were killing. They had to start over. That took weeks and it was painful.

But they also got to double down on the winners. More budget. More creative. More testing. On products that actually made money.

Operations rebuilt the systems. Simpler inventory model. Fewer supplier relationships. Cleaner dashboards. What used to take 10+ hours a week became maybe 3 or 4.

And then we waited to see what would happen.

Here's the truth: revenue dropped.

When you cut products, you lose revenue. There's no way around it. Top-line went down.

And for a minute, that was scary. Revenue is the number everyone looks at. It's the number you celebrate. The number that makes you feel like you're winning.

But here's what else happened:

Contribution margin went up. Significantly.

Net profit went up. Even more significantly.

We made more money on less revenue.

Let that sink in. We cut 40% of our products. Revenue dropped. And we were more profitable than before.

This is the math that most people don't run. They're so focused on growing revenue that they forget revenue isn't the goal.

Profit is the goal. Cash is the goal. Sustainability is the goal.

And beyond the numbers, something else changed.

The chaos went down. The stress went down. The job got easier.

Fewer products to manage meant less scrambling, less firefighting, less "oh no we're about to stockout on this random SKU that barely sells."

We could actually focus. On the products that mattered. On the suppliers that mattered. On the customers that mattered.

I think about this experience constantly. Because I see founders making the same mistake I made.

Proud of their big catalog. Stressed about managing it all. Running themselves ragged for products that are quietly bleeding them dry.

Here's what I took away from that whole experience:

You can't make SKU decisions alone. Marketing, Finance, and Operations all need to be in the room. Everyone sees a different piece. Everyone needs to be aligned before you start cutting.

Revenue will probably drop. That's okay. The question isn't "will revenue drop?" It's "will profit improve?" Run the scenarios before you decide.

The transition takes time. This isn't a weekend project. Plan for 6-8 weeks to do it right. Decisions, communication, marketing rebuild, inventory liquidation, operational cleanup.

Fewer SKUs means simpler everything. Less inventory. Fewer suppliers. Easier forecasting. The complexity reduction alone is worth it.

And your "best sellers" might be your worst performers. Don't trust revenue rankings. Trust contribution margin rankings. They tell very different stories.

One more thing.

Even after we simplified the catalog and improved margins, there was still a problem. The profit wasn't sitting in the bank. It was tied up in inventory. We were still funding purchase orders before seeing revenue. Still waiting weeks for product to arrive.

That's a cash flow problem. And that's what I'm going to dig into next month. Because knowing your margins means nothing if all your cash is stuck in inventory.

And speaking of suppliers and sourcing, once you’ve done the hard work of figuring out which products to keep, the next question becomes: are you getting the best deal from your suppliers?

This April, I’m heading to China and Vietnam to visit factories, walk trade fair floors, and source products on behalf of DTC brands. If you’ve ever wanted boots-on-the-ground intel from the world’s top manufacturing hubs—or wanted someone to vet suppliers for you in person—more details are coming in March. Keep an eye out.

But for now: if you’ve got a bloated catalog and you’re working harder than ever without the profits to show for it, you know what to do.

This is exactly what we work through in the MOVE Accelerator. The unit economics. The kill/fix/scale decisions. The cross-functional conversations. The implementation. I've been through it myself and I've helped dozens of founders do the same.

If this story sounds familiar, if you're managing too many products and wondering why profits aren't keeping up, this is the work.

This Week's Action

Three honest questions:

1. How many SKUs are you managing right now? (Just count them.)

2. How many of those have you calculated real contribution margin for? (Be honest.)

3. If you found out tomorrow that 30-40% of your products were losing money... would you be surprised?

If the answer to #3 is "I don't know" or "probably not," you have work to do.

Start with the unit economics. Sort into buckets. Make the hard calls.

The math isn't getting better on its own.

See This In Action

I walked through the Kill/Fix/Scale framework on YouTube. If you want to see how I think through these decisions with real examples, check it out:

Until next time,

Lara

P.S. The hardest part of that whole experience wasn't cutting the products. It was admitting I'd been wrong about them for so long. That I'd been pouring energy into things that weren't working. That honesty with myself is what made everything else possible.

P.P.S. Next month: cash flow. Because margin improvements mean nothing if your cash is trapped in inventory. Stay tuned.