Transaction Unit Economics: 30% of Sales Lose Money (Identify & Eliminate)
Online retailer order: SGD 50 price, SGD 30 COGS (GROSS SGD 20). Minus shipping SGD 5, payment fee SGD 1, customer support contact SGD 2, return (10% rate, 50% cost) = 5% × SGD 15 = SGD 0.75. Net profit: SGD 20 - SGD 5 - SGD 1 - SGD 2 - SGD 0.75 = SGD 11.25 (22.5% margin). Looks good. But outlier: low-volume SKU (A/B testing), 20% return rate (quality issue), higher support cost (assembly question). Actual net: SGD 50 - SGD 30 - SGD 5 - SGD 1 - SGD 4 (support) - SGD 5 (returns) = SGD 5 (10% margin). Or: negative margin if customer demands refund (50% chance for low-quality item).
What Kills Unit Economics?#
(1) Shipping: heavy/bulky items eat 10-20% margin. (2) Returns: high return rate (20%+) can swing profitable to loss-making. (3) Payment processing: international payments 3-5% fee. (4) Support cost: new/complex product requires customer calls/emails. (5) Refunds/disputes: chargeback rate >1% kills profitability.
The Hidden Cost Structure#
Simplified: Price - COGS = gross profit. Detailed: Price - COGS - Shipping - Payment Fee - Support - Returns = net profit. Most businesses track first 2, ignore last 3. Missing 15-25% of cost = incorrectly measure profitability.
Rank all products by net margin (full calculation).
Identifying Losing Transactions#
Rank all products by net margin (full calculation). Expect: top 20% very profitable (30%+), middle 50% moderate (10-20%), bottom 30% low/loss-making (<5% or negative). Bottom 30% are dragging down overall margin. Action: discontinue or price appropriately (raise price 10-20% if elastic allows).
Data-backed guides on AI, eCommerce, and SME strategy — straight to your inbox.
AskBiz Unit Economics Dashboard#
Calculates full margin per SKU including all hidden costs. "Top 20 SKUs by volume: avg 28% net margin (keep selling). Bottom 20 SKUs: avg -2% net margin (losing money on each sale). Recommendation: (1) discontinue 10 SKUs (lowest margin), (2) price increase 10% on 10 others (reduce volume loss if inelastic, improves margin). Projected impact: +5% blended margin = SGD 12.5K additional annual profit."
- Online retailer order: SGD 50 price, SGD 30 COGS (GROSS SGD 20).
- Minus shipping SGD 5, payment fee SGD 1, customer support contact SGD 2, return (10% rate, 50% cost) = 5% × SGD 15 = SGD 0.75.
- Net profit: SGD 20 - SGD 5 - SGD 1 - SGD 2 - SGD 0.75 = SGD 11.25 (22.5% margin).
People also ask
Should I always discontinue low-margin items?
Not if they have strategic value: (1) customer acquisition (loss leader), (2) bundling (sell unprofitable item with profitable), (3) seasonal (profitable 3 months/year). But: set time limit (6-month trial), measure ROI, discontinue if not justified.
How do I improve unprofitable unit economics?
Reduce costs: negotiate lower shipping, reduce returns (improve quality), negotiate payment fees. Or: increase price and accept volume loss if inelastic. Or: bundle with profitable items (hidden price increase). Or: discontinue.
Our team combines expertise in data analytics, SME strategy, and AI tools to produce practical guides that help founders and operators make better business decisions.
Analyze Unit Economics (Eliminate Losing Transactions)
AskBiz calculates net margin per SKU including all costs (shipping, fees, support, returns). Identifies unprofitable items. Recommends pricing or discontinuation. Try free.
Connects to Shopify, Xero, Amazon, QuickBooks, Stripe & more in minutes