The Trap of Overall P&L: Why Big Sales Can Hide Big Losses
Many Meesho suppliers look at their business through a single metric: Total bank settlement vs Total expenses. If they receive ₹2,00,000 in payouts and spend ₹1,50,000 on inventory and courier bills, they assume they made a clean ₹50,000 profit. This is a dangerous trap.
In e-commerce, it is highly common for 80% of your profits to come from 20% of your products. The remaining 80% of your products might be barely breaking even or actively losing money. A high-selling product with a 35% return rate and high ad campaigns will eat up the profits of your quiet, highly profitable products. Without SKU-level analytics, you are subsidizing your losing products with your winners.
A seller was moving 500 units/day of a cotton dress, thinking they were rich. After auditing their payments at the SKU level, they realized the return rate on that dress was 42% because of size discrepancies. They were losing ₹30 on every unit shipped!
The Components of SKU Costing
To analyze a specific product's profitability, you must map the following values to the unique SKU identifier:
- Purchase / Manufacturing Cost: The exact sourcing price of that specific item.
- Weight Slab Shipping: Heavy products cost more to ship. Group SKUs by their physical weight category.
- RTO and Return Rates: Returns vary dramatically. Saree returns are usually lower than western wear dresses.
- Allocated Ad Bids: If you bid ₹4 CPC on SKU A and ₹1 CPC on SKU B, their unit economics are completely different.
Step-by-Step SKU Margin Calculation
Let's compare two different products in a seller's catalog:
| Cost Element | SKU A (Kurti) | SKU B (Heels) |
|---|---|---|
| Selling Price | ₹399 | ₹599 |
| Sourcing Cost (COGS) | ₹140 | ₹260 |
| Base Shipping Fee | ₹65 | ₹90 |
| Return/RTO Rate % | 18% | 32% |
| Allocated ad spend | ₹15 | ₹45 |
| Net Margin % | 31% (₹123 Profit) | 3% (₹18 Profit) |
Even though SKU B sells for more money, it generates almost zero real profit due to high weight shipping and returns. You are taking 10 times more risk for SKU B to make less than 15% of the profit of SKU A.
The RTO Impact on SKU Economics
Why does RTO destroy SKU profitability? Because when a customer rejects a package, you lose the shipping fee and packaging cost, and the product is stuck in transit, making it unavailable to sell to someone else. If your return rate increases by 10%, your net margin drops by approximately 6-8% across e-commerce channels.
What to Do with Loss-Making SKUs
Once you identify which SKUs are bleeding cash, take action immediately:
- Raise prices: If returns are high but the product is popular, raise the listing price by ₹30-50 to build a cushion.
- Improve quality / description: If returns are due to size, update the size chart. If returns are due to color, update catalog photos to represent real products.
- Reduce ad spend: Stop running campaigns for products with margins under 10%.
- Delist the product: If the RTO rate remains above 35% after attempts to optimize, remove the listing and focus your cash flow on winning products.
📊 Identify Your Best and Worst Performing SKUs
Our dashboard integrates with your Meesho reports to map SKU-level costing, return rates, and ad spend automatically, highlighting your true margin heroes.
Open SKU Costing Tool
