SKU unit economics: do the math before you write anything

Why this course opens with a calculator, not a prompt

The temptation looks like this: a hundred listings sell badly, so you rewrite the descriptions with a model and sales go up. In practice half of them sell badly not because of the text but because after every deduction the item earns about a dollar per sale, and more traffic only burns the ad budget faster. The first skill is breaking a single SKU into its parts and deciding whether anything there is worth optimising.

What goes into one item's unit economics

Landed cost. Not the invoice price, but price including freight, duties and packaging per unit.
Platform commission or payment processing. A percentage of the selling price, varying by category.
Outbound and return shipping. The return leg is charged against every completed sale, not every return: if seven of ten orders are accepted, three return legs are spread across seven paid units.
Storage. A rounding error for fast movers, a killer for an item that sits four months.
Advertising. Ad spend as a share of revenue for this SKU, not the account average.
Defects and damage. The share of a batch that never reaches a customer in sellable condition.

Then calculate margin after all deductions, in currency and in percent. Percentages compare positions; the absolute number tells you how many units a month justify handling the item at all.

Where the model helps

The model is not a source of numbers here, but a calculator that explains itself. Export the table and ask it to work through the rows.

Prompt: Below is a SKU table: landed cost, selling price, commission %,
outbound and return shipping, acceptance rate, monthly storage, ad share.
For each row calculate: margin after all deductions in currency,
margin as a percentage, and the break-even selling price.
Flag rows where margin is under 12% or under a fixed floor per unit.
Do not invent missing figures — list what data is missing instead.

Insight. That last sentence matters more than the rest: without it the model will cheerfully fill in plausible commission rates and hand you a beautiful, loss-making report.

Common mistake. Calculating margin from the pre-discount price. The customer pays the promotional price and commission is charged on that same price, so the spreadsheet and the bank account diverge badly.

Pro tip. Add a column for margin per unit of capital per month: an item at 18% margin that turns over every two weeks earns more than one at 40% that turns over once a quarter.

Cheat sheet

SKU economics first, content and advertising second.
Spread return shipping across accepted orders, not across returns.
The model calculates and explains; you supply the numbers.
Compare items by margin per unit of capital, not by percentage.

1. Why is return shipping charged against every completed sale?

2. What must a margin-calculation prompt always include?

3. Two items: 18% margin turning over fortnightly, 40% turning over quarterly. What do you compare?

🔒 Answer the question correctly to move on to the next lesson.