Your Best Seller Might Be Your Worst Product

Hey there,

There's a conversation I've seen play out at least fifty times.

It usually happens on a Zoom call. Or in a Slack thread. Or sometimes just inside a founder's own head when they're trying to figure out why everything feels so hard.

It goes like this:

Marketing: "We need more inventory to scale. We've got this amazing campaign ready to go, but we can't run it if we're going to stockout halfway through."

Finance: "We can't afford more inventory. Cash is tight. We just paid the last manufacturer invoice and we're watching every dollar."

Operations: "Even if we had the money, we need 12 weeks to get more inventory. If you wanted it for this campaign, you should have told me two months ago."

Everyone's right. Everyone's frustrated. And nothing changes.

Sound familiar?

The problem isn't marketing. It's not finance. It's not operations.

The problem is that these three functions are operating in silos. They're making decisions independently, based on their own priorities, with their own timelines, using their own data.

I get why it happens.

Think about how most DTC brands are actually structured:

You've got a Filipino VA or small ops team handling inventory and 3PL communication. They're in a different timezone, working off a spreadsheet you set up six months ago.

You've got a growth agency running your ads. They're incentivized to scale spend and hit ROAS targets. They're not thinking about whether you have the inventory to support their next campaign.

And maybe you've got a fractional CFO who looks at the books once a month. They see the cash position, but they don't know that marketing just 3x'd ad spend or that a container is delayed by two weeks.

Everyone's doing their job. Everyone's working hard. But nobody's talking to each other. Because it's easier not to.

Syncing up across timezones is a pain. Explaining your marketing calendar to your ops person feels like extra work. Looping in finance on inventory decisions seems like overkill.

So everyone stays in their lane. And the silos get deeper.

Until something breaks: a stockout, a cash crunch, a campaign that flopped because there was nothing to sell.

And then everyone's scrambling, wondering how it happened. When the real answer is: nobody was connecting the dots.

Even when these teams DO talk, they're often speaking different languages. Looking at different numbers. Optimizing for different things.

And there's one number in particular that almost nobody is looking at. The one that actually matters.

Contribution margin.

Let me explain why this one number destroys more DTC brands than bad ads ever will.

Revenue is the number everyone celebrates. It's the number you post on Twitter. It's the number your agency puts in case studies. It's the number that makes you feel like you're winning.

But revenue is vanity. The contribution margin is sanity.

Most founders can tell you their top-selling SKUs by revenue. Ask them which SKUs actually contribute profit after all costs? Blank stare.

And that gap between what you think is working and what's actually making money is where brands quietly bleed to death.

What is the contribution margin, really?

Here's what it actually means for DTC:

Contribution Margin = Revenue - All Variable Costs

Not just COGS. ALL variable costs. Everything that scales with each unit sold.

That includes:

Product cost (what you pay your supplier)

Inbound freight (getting it to your warehouse)

Packaging and inserts (the unboxing experience isn't free)

Pick, pack, and ship (your 3PL fees)

Payment processing (that 2.9% + $0.30 adds up)

Returns and refunds (the cost of that "free returns" policy)

Customer acquisition cost allocated to that SKU (yes, really)

When you add all of that up, not just COGS, you get a contribution margin.

And here's why it's different from gross margin: gross margin is usually calculated at the brand level. It hides things. It averages everything together.

Contribution margin, calculated at the SKU level, tells you the truth about each individual product.

Why your "best seller" might be your worst performer.

I worked with a brand last year. Let's call them Brand X. They had a hero SKU. Their "best seller." It was 40% of their revenue. They were scaling ads hard on it. The agency was thrilled. ROAS looked great.

But when we calculated the actual contribution margin on that SKU?

It was 8%.

Eight percent. On their biggest product.

Here's what was happening:

The product was heavy, so shipping costs were high. The return rate was 18% because of sizing issues they'd never fixed. The CAC to acquire customers for that specific product had crept up over time. And because it was a lower price point, payment processing fees ate a bigger percentage.

None of this showed up in their "gross margin" reporting. Because the gross margin was calculated at the brand level, averaging the hero SKU with everything else.

Meanwhile, they had a smaller SKU, maybe 12% of revenue, that everyone ignored. Contribution margin? 34%. Lower return rate. Lower CAC. Higher price point.

They'd been starving their most profitable product to feed their least profitable one.

That's what happens when you don't have SKU-level contribution margin visibility.

See where this goes wrong?

Your marketing team is optimizing for ROAS. That's their job. That's what they're measured on.

But ROAS is based on revenue. Not contribution margin.

So when your agency says "we're getting 4x ROAS on this SKU!" that sounds amazing. But if that SKU has an 8% contribution margin, you're not making money. You might actually be losing money at scale.

You're paying to lose money faster.

Your marketing team doesn't know this. Because they don't have access to SKU-level margin data. They're looking at revenue. They're looking at ROAS. They're doing their job with incomplete information.

Meanwhile, your finance person (if you have one) is reporting gross margin at the brand level. 45% gross margin! Looks healthy!

But that aggregate number is hiding the SKUs that are killing you.

This is what happens when marketing, operations, and finance aren't connected. When they're not looking at the same numbers. When there's no shared language.

Everyone's doing their job. And the business is bleeding.

The fix isn't more meetings.

It's shared metrics. Starting with SKU-level contribution margin.

When your marketing team has access to real margin data, they stop optimizing for vanity ROAS and start pushing products that actually make money. When your ops team tracks the costs that affect contribution margin, 3PL fees, packaging, freight, they flag changes before they kill your margins. When finance models cash flow using contribution margin instead of gross margin, inventory decisions get smarter.

Same numbers. Same dashboards. SKU-level visibility that tells the truth.

The business gets easier to run, not harder.

Quick diagnostic

Can you tell me, right now, which of your SKUs has the highest contribution margin? Not revenue. Contribution margin.

Does your marketing team know which products actually make money after all costs?

Is your finance reporting showing SKU-level margins, or just brand-level averages?

If the answer to any of these is "no" or "I'm not sure," you're making decisions with incomplete data. Every dollar you spend scaling a low-margin SKU. Every high-margin product you're ignoring.

That's expensive.

This is exactly what we build in the MOVE Accelerator, the systems that connect your marketing, ops, and finance around numbers that actually matter. SKU-level P&Ls that tell the truth. Meeting rhythms and dashboards that keep everyone aligned.

This Week's Action

Here's something you can implement this week, even if you're a solo founder doing everything yourself.

Pick your top 3 SKUs by revenue. For each one, calculate:

1. Revenue per unit

2. Product cost (what you pay your supplier)

3. Inbound freight (allocated per unit)

4. 3PL/fulfillment cost per unit

5. Payment processing (usually ~3%)

6. Average return/refund cost (return rate x product cost)

7. CAC allocated to that SKU (if you can estimate it)

Contribution Margin = Revenue - (all of the above)

Do this for your top 3 SKUs. Put them side by side.

I guarantee you'll be surprised. Your "best seller" might not be your best performer. And the SKU you've been ignoring might be your most profitable product.

Got a supply chain question at 2AM?

I get it. Questions don't wait for business hours. And sometimes you just need a quick gut check before you make a decision.

So I built something: I fed 17 years of my supply chain experience into a Delphi.ai clone. It's basically me (my frameworks, my advice, my way of thinking through problems) available 24/7.

Need help thinking through your contribution margin calculation? Ask it. Wondering if your ROAS actually means you're profitable? Ask it.

Until next time,

Lara

P.S. If you do the contribution margin exercise and find out your "hero SKU" isn't actually your hero, reply and tell me. I've seen this revelation completely change how founders think about their business. It's uncomfortable, but it's the beginning of making smarter decisions.