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Glossary · Finance

What is Product Profitability Matrix?

A product profitability matrix is a table that places every item in the catalog on axes of sales volume and contribution margin. It produces four zones: high volume and profitable, high volume but unprofitable, low volume but profitable, low volume and unprofitable. Each zone calls for a different action; contribution margin analysis turns into concrete decisions in this table.

Detail

High-volume but unprofitable items are usually a pricing or shipping problem, and they are where ad budget burns fastest. Low-volume but profitable items are a visibility problem; improving the listing and the content is often enough. Low-volume and unprofitable items are candidates for liquidation. The matrix has to be built on contribution margin rather than revenue, otherwise the best-selling item is automatically assumed to be the best item. Refreshed quarterly, it shows which items change zone across season transitions.

Example

If a product generating a fifth of revenue has a negative contribution margin, stopping its advertising raises total profit within the same month.
FAQ

Common questions on this topic.

How is Product Profitability Matrix calculated?

High-volume but unprofitable items are usually a pricing or shipping problem, and they are where ad budget burns fastest. Low-volume but profitable items are a visibility problem; improving the listing and the content is often enough. Low-volume and unprofitable items are candidates for liquidation. The matrix has to be built on contribution margin rather than revenue, otherwise the best-selling item is automatically assumed to be the best item. Refreshed quarterly, it shows which items change zone across season transitions.

Why does Product Profitability Matrix matter?

High-volume but unprofitable items are usually a pricing or shipping problem, and they are where ad budget burns fastest. Low-volume but profitable items are a visibility problem; improving the listing and the content is often enough. Low-volume and unprofitable items are candidates for liquidation. The matrix has to b…

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