Haircare Product Profitability Review: Which Items to Keep

Why revenue rank misleads

Revenue rank measures sales value, not what remains. A £30 shampoo selling 100 units produces £3,000 in sales; a £12 conditioner selling 180 produces £2,160. The shampoo ranks higher, but that does not establish which product earns more after its costs.

Price and discounting can distort the ranking. A product may appear strong because of a high ticket price or a temporary promotion, while the discount reduces realised revenue per unit. Cost of goods then changes the picture again: a £30 item costing £24 to buy has less room than a £12 item costing £4.

Fulfilment costs matter where parcels, packaging or shipping differ by product. Returns matter too: a product can generate order value but lose revenue when units are returned or cancelled. For a UK store, the useful revenue measure is delivered sales after those exclusions, not the value initially placed in baskets. ORVX calculates realised revenue from delivered orders only and reports return rate by units and refund value against revenue. It also calculates gross and net profit from your product cost model, so revenue rank can be read alongside the economics in a profit-margin calculator.

Contribution per product

Contribution is the money left from a product after costs directly caused by selling it. Start with realized revenue, then deduct product cost, discounts, payment fees, pick-and-pack, delivery subsidy, and return or refund handling where these can be assigned reliably. Advertising belongs in contribution when spend can be attributed to the product or collection; otherwise label the measure before using it for decisions.

For illustration only, a £30 delivered order with £8 product cost, £3 fulfilment, £1.20 payment fees and £5 attributable advertising produces £12.80 contribution. Revenue shows sales value. Gross margin shows what remains after product cost, making it useful for sourcing and headline pricing, but it commonly excludes fulfilment, payment and advertising. Contribution is more useful when deciding whether to scale a promoted shampoo, adjust its economics or compare the cost of selling one SKU with another. ORVX reports contribution after advertising per product and collection, alongside profitability measures. For a quick margin check, use the profit margin calculator.

How to read the worked example

Read the worked example from left to right. Revenue is the money recognised from the orders included in the example. It is the starting point, not the amount available to spend, because the deductions below remove costs attached to making and selling those orders.

Next, identify each deduction separately. Product cost covers the item itself; other deductions may cover discounts, payment fees, fulfilment or advertising where the example includes them. Do not skip a deduction or treat a percentage as a cash amount: check whether the example applies it per unit, per order or across the full sale.

Contribution per unit shows what one item leaves after its listed direct costs. Contribution per order shows what remains from the complete basket after order-level costs are included or allocated. Use the unit figure to inspect product economics; use the order figure when fulfilment, payment or acquisition costs depend on the basket rather than one product.

Compare products on the same basis

Make the comparison like-for-like. Use the same sales period, such as 1-31 March, and include the same channels for every product: Shopify, marketplaces and any wholesale orders. If a product is sold through a different channel mix, separate the channel results rather than treating the totals as directly comparable.

Apply fulfilment costs consistently. Include pick-and-pack, postage and payment fees for every product, or exclude the same cost categories from every product. Record discounts against the product that received them, and remove cancelled or returned orders from realised revenue. Show return rate separately, because a product can appear profitable before refunds but not after them.

For example, this comparison uses delivered orders only, net sales after discounts and refunds, and the same fulfilment and advertising treatment:

Deciding what to cut

A weak or negative contribution line is a prompt to investigate, not an automatic removal decision. Check whether the issue comes from the selling price, pack size or supplier cost: a larger bottle may need a higher price, while a small pack may look profitable per unit but not per millilitre. Reconcile promotions and discount codes with the price customers actually paid, then include shipping costs that vary by parcel weight, size or delivery method. Also check whether returns are concentrated in this product rather than spread across the range.

The right action depends on the cause. A price problem may justify a controlled price test; supplier cost may call for renegotiation or a different pack; promotional or shipping costs may need fixing before the product is cut. Use product-level contribution after advertising for the immediate economics, but check collection profitability and customer-level repeat behaviour before removing a replenishment product. A low-margin shampoo that brings profitable conditioner purchases may earn its place, while a seemingly profitable item with costly returns may not. Set your own review threshold from cash, stock and capacity constraints rather than applying a universal cutoff. ORVX can show these measures together, including remaining stock value and dead stock, so the decision reflects both economics and what is tied up in inventory.

A quarterly review routine

Run the review at the same point every quarter, using the closed quarter as the reporting period. Export product, order, return, discount, payment, shipping, cost and advertising data, then save the file with the period and currency in its name. Keep the previous quarter’s version so changes can be traced.

After recording decisions, check the next quarter’s results against the decision record: contribution, units, return rate, stock position and advertising contribution. Mark each decision as continued, reversed or still under test, with the evidence and next review date.

• Check assumptions first: delivered orders only, correct treatment of cancellations and returns, current product costs, discount rules, payment fees, advertising allocation and consistent UK trading currency.
• Calculate and compare contribution by product and collection. Use contribution per unit to assess product economics, total contribution to assess financial impact, and contribution after advertising when judging paid acquisition.
• Record the decision for each material change: scale, reduce, fix economics, test or stop. Add the reason, supporting figures, owner, date and the measure that will determine whether it worked.
• Separate a decision from a prediction. Write “test a bundle for Product A” rather than assuming it will increase profit, and define the comparison period before making the change.
• Keep an exceptions log for missing costs, unusual returns, stockouts, launches and one-off campaigns. Revisit those lines before acting on the quarter’s comparison.

A useful haircare profitability review does not ask which product has the highest revenue. It asks what each sale contributes after the costs the store can reasonably assign to it, then uses that comparison alongside stock, customer and operational context to decide what deserves another review.