The One With the $2M Brand That Cut 40% of Their SKUs (And Made 72% More Profit)

The $2 million brand that cut 40% of their SKUs, $2.1 million in revenue, 23 SKUs, one exhausted founder, zero profit. 6 months later, $1.96 million in revenue, 14 SKUs. The same founder Except now she's sleeping through the night and 72% more profit than the year before. Let me say that again. 7% less revenue, 72% more profit. Today I'm walking you through exactly how she did it. Every number, every decision, every moment of panic when it looked like it wasn't going to work. This is the proof that everything we've covered this month actually works. Unit economics. Kill, fix, or scale, the whole framework applied to a real business with real stakes. I'm going to give you the full case study, the symptoms that told us something was wrong, the spreadsheet that revealed the truth, the decisions that felt terrifying, the execution over 6 months, the panic in month 1 when revenue dropped, and the outcome that changed everything. This is Supply Chain Moves. I'm Lara Guevara, and this is the story of Rachel, Let me set the scene. Rachel runs a pet accessories brand. Collars, leashes, bandanas, bowls, beds. The aesthetic is modern, minimal, designed for the kind of dog owner who coordinates their pet's accessories with their apartment decor. Great brand, great reviews, growing every year. When she came to me, she was doing about $2.1 million in annual revenue. She had 23 active SKOs. And she was working 70-hour weeks while paying herself about $40,000 a year. The symptoms were classic. Symptom 1, revenue was growing, but cash was always tight. She'd have a big sales month and still struggle to make payroll 2 weeks later. The money came in and then just disappeared. Symptom 2, she was constantly busy with operations, reorders, customer service tickets. Returns, quality issues, supplier negotiations. 23 SKUs meant 23 sets of problems. Symptom 3, her hero product, this gorgeous leather collar that had been featured in a few publications, was driving most of her marketing. But every time she pushed it hard, she felt like she was working harder without getting ahead. Symptom 4, she had no idea which products were actually making money. She knew her gross margins, sure. Anywhere from 55 to 70%, depending on the product. All looked healthy, but profitable, she couldn't say for certain. When I asked her what she thought the problem was, she said, I think I just need to get bigger. Once I hit 3 million, the economics will work. That's when I knew we needed to look at the numbers because getting bigger doesn't fix broken unit economics. It just makes them bigger. We spent 2 days building the spreadsheet, and I mean really building it. Every SKU, every cost, line by line. Landed cost including freight, duties, and brokerage. Warehousing allocated by how long each product sat before selling. Pickpack and fulfillment. Shipping actual cost by product weight and size. Payment processing returns by individual SKU. Customer service allocation based on ticket volume. And customer acquisition cost. Tracked by product category. When we finished, Rachel stared at the screen for about 30 seconds without saying anything. Here's what the data showed. Of her 23 SKUs, only 5 had contribution margins above 30%. 5 out of 23. Those 5 products were doing all the work. 9 SKUs were below 15% contribution margin. 9 products that were either losing money or barely breaking even. And these weren't obscure products. 2 of them were in her top 10 sellers by volume. The remaining 9 were in the gray zone, 15 to 30%. Fixable maybe, but not in their current state. And then there was the leather collar. Her hero, the product she'd built her brand around. The gross margin, 68%, looked incredible. Contribution margin, 11%. 11. The collar was beautiful, but it was heavy, which meant expensive shipping. It required special packaging, which added fulfillment cost. It had a 13% return rate because customers would order the wrong size or decide leather wasn't for them. And because it was her hero product, she was spending aggressively on ads to push it. CAC for the collar line was $34. Every time someone saw a Facebook ad, clicked through, and bought that gorgeous collar, Rachel made about $4 after all costs. $4 on a $59 product. And she'd been scaling this as hard as she could for 2 years. That's when she said, I think I'm going to be sick. I told her, no, you're going to fix this. You have the data now. Let's make decisions. We ran every single product through kill, fix, or scale. Here's how it broke down. Scale bucket, 5 products, a nylon collar set that had a 42% contribution margin. A simple bandana line at 38%, a canvas leash at 35%, a food bowl set at 33%, and a travel water bottle at 31%. These 5 products represented about 30% of her revenue, but almost all of her profit. They were simple products, lower price points, easy to ship, low return rates, organic search traffic. They weren't sexy, but they worked. Kill bucket, 9 products, including 2 styles of dog beds that had negative contribution margins because of shipping costs and damage claims, a ceramic bowl set with a 22% return rate because they kept breaking in transit, a winter jacket line that only sold 3 months a year and sat in storage to rest, eating cash, and 4 SKU variations that sold maybe 10 units a month and weren't worth the operational overhead. These 9 products were consuming resources, creating complexity, and contributing Basically nothing to the bottom line. Fix bucket: 9 products, including the leather collar. The collar was a special case. Rachel didn't want to kill it. It was the face of her brand. It got all the press. Customers associated the brand with that collar, but at 11% contribution margin, she couldn't justify scaling it either. We decided to try fixing it, but with a twist. We weren't going to try to make it a hero anymore. We were going to demote it. Keep it in the catalog, but stop pushing it in paid marketing. Let it sell organically to people who specifically wanted it. Raise the price to $69. Improve the product page to reduce size-related returns.

If after 90 days the contribution margin wasn't above 25%, we'd revisit.

For the other 8 fixed products, we assigned specific levers. Price increases for 3. COGS negotiations for 2, returns reduction initiatives for 2. One got bundled with a scale product to spread the acquisition cost. Rachel looked at the plan, then she looked at me, then she said, are we really doing this? Cutting 9 products? Or I said, those 9 products aren't helping you. They're hurting you. Every hour you spend on them is an hour you're not spending on the 5 products that actually make money. She took a breath and then she said, okay, let's do it. The execution took 6 months. Here's how we structured it. Month 1, stop the bleeding. We stopped all reorders for killed products immediately. Rachel had about $60,000 in inventory across those 9 SKUs. We ran clearance sales, offered bundles, and reached out to a liquidator for the dog beds that nobody wanted. By the end of month 1, we'd moved about 40% of that inventory at cheap discounts. We also paused all paid advertising for the leather collar. Cold turkey. The ad account that had been spending $600 a day on collar ads went to zero overnight. That money got reallocated to the scaled products. Month 2, fixed product changes, price increases went live. 3 products went up between 10 and 18%. We watched conversion rates carefully. 2 products saw minimal conversion drop. One dropped about 15%, but the margin increase more than compensated.

Rachel got on calls with her suppliers. She got a 7% cost reduction on her top-selling bandana by committing to larger orders. She found an alternative supplier for her canvas leash that was 12% cheaper.

The leather collar got its new product page, better size guide, video showing how to measure your dog. Clearer expectations about the weight and feel of the leather and the new $69 price point. Month 3: Scale acceleration. With the kill products winding down and the fixed products stabilizing, Rachel could finally focus on her winners.

She doubled her inventory depth on the 5 scale products. No more stockouts. She negotiated better supplier terms using her increased volume. She launched 2 new colorways for the bandana line. She increased ad spend on the nylon collar set, which had the best CAC to margin ratio. This is what scaling actually looks like, not just more ads, more inventory, better terms, product extensions, channel expansion.

Month 4 kill completion. The last of the kill inventory cleared out. Rachel had recovered about $32,000 of that $60,000 at various discounts. The rest went to a liquidator for 8 cents on the dollar. Not great, but done. 9 SKUs officially discontinued. Removed from the website. Cleared from the warehouse. Archived in the systems. Her catalog went from 23 products to 14. It felt strange. Smaller, but also cleaner. Month 5. Fixed decision time. 90 days in on the fixed products. Time for the reckoning. The leather collar had improved. Return rate dropped to 8% with the new product page. Price increase held. Organic sales were steady. Contribution margin was now at 22%. Not 30, but workable. We kept it with a note to revisit in another quarter. Of the other 8 fixed products, 5 had moved into scale territory above 30%. 2 were stuck in the low 20s despite our efforts. One actually got worse. Rachel made the call. The 3 that couldn't be fixed went to kill. Another round of liquidation. Catalog dropped to 14 SKUs, but with better overall economics. Month 6: The New Normal. By month 6, everything had stabilized. 14 products, clear contribution margins, focused marketing, streamlined operations. Rachel was working 50 hours a week instead of 70. Her customer service volume had dropped because the high-return, high-complaint products were gone. Her warehouse was simpler to manage.

And then she looked at the numbers.

But I need to tell you about the panic first, because this story isn't complete without it. Month 1 was terrifying. Revenue dropped 18%. 18%. Rachel called me in a panic. She said, Lara, we made a mistake. Look at these numbers. We're dying. I asked her to pull up the breakdown. Where was the drop coming from? Almost all of it was from the leather collar. Turning off the ads meant turning off the sales. The collar had been generating about 30% of her monthly revenue, and now it was down to organic only, which was maybe a third of what it had been. The rest of the drop was from kill products on clearance. People were buying them at 40% off, so revenue per unit was way down. I said, okay, revenue is down 18%. What's profit doing?

She checked. Profit was up 11%.

Up in a month where revenue cratered. That's when it clicked for her. Revenue isn't the goal. Profit is the goal. She'd been optimizing for the wrong number her entire business. Month 2, revenue was still down but less. Profit was up more. Month 3, the scaled products started taking over. Revenue stabilized, profit kept climbing. By month 4, she stopped checking revenue first. She started checking profit first. That mental shift is everything. Okay, let's talk about the outcome. Real numbers. Before, $2.1 million in revenue, 23 SKUs. Net profit after all costs including her minimal salary, $52,000. That's a 2.5% net margin. 2.5% on $2 million in revenue after $1.96 million in revenue, 14 SKUs, net profit $89,000. That's a 4.5% net margin, 72% more profit on 7% less revenue. Let me break down where that profit came from. First, killing the underwater products. Those 9 products were collectively losing about $18,000 a year when you factored in all costs. Getting them to zero wasn't just neutral, it was an $18,000 swing. Second, fixing the gray zone. The 5 products that graduated from fix to scale added about $12,000 in annual profit through price increases and cost reductions. Third, scaling the winners. The original 5 scale products grew by 23% in volume because Rachel could finally focus on them. Combined with better supplier terms and higher AOV from bundling, that added about $8,000 in profit. Fourth, reduced overhead. Fewer SKUs meant less warehouse space, less customer service time, less complexity. Rachel was able to reduce her 3PL cost by about $6,000 a year just by having fewer products to manage. $18,000 $12,000 $8,000 $6,000. That's $44,000 in profit improvement, but she only reported $37,000 more. Where's the gap? Rachel gave herself a raise. She went from $40,000 to $47,000 in annual salary, and honestly, she should have given herself more. But here's the other metric that mattered. Hours worked. Before, 70 hours a week. After, 50 hours a week. That's 1,000 hours a year she got back. 1,000 hours to spend with her family, to think strategically, to not burn out. More profit, more free time, smaller catalog, better business. I want to talk about the emotional reality of this process because the numbers are clean in retrospect. But living through it was messy. Rachel cried twice. Once when she saw the initial spreadsheet and realized her hero product was underwater. That was grief. Grief for the story she'd told herself about her business. Once in month one when revenue dropped and she thought she'd destroyed her company. That was fear. The primal fear of watching something you built start to shrink. She told me later that killing the dog beds was actually easy. They were new products that hadn't worked. No emotional attachment. But discontinuing one of the kill products, a matching collar and leash set in a signature print that had been part of her original launch, that felt like cutting off a limb. That product represented who she was when she started the company. It was in her logo. It was in her early press. She kept it 2 weeks longer than she should have. She knew the numbers. She'd made the decision. But she couldn't pull the trigger. When she finally did, she wrote a newsletter to her customers explaining that she was evolving the brand, focusing on what worked, making space for what's next. The response was overwhelmingly positive. Customers respected the transparency. The emotional attachment was in her head. Her customers didn't care nearly as much as she thought they would. That's the thing about sunk cost and emotional decision-making. We assume everyone else sees what we see. We assume they'll notice what's gone. Mostly they don't. They just keep buying what they need. I asked Rachel what she'd do differently if she could do it again. She said 3 things. One, she would have run the unit economics analysis 2 years earlier before she scaled products that couldn't sustain it, before she poured money into advertising underwater SKUs. The math was always there. She just didn't do it. 2, she would have cut faster. The 2 weeks she hesitated on that signature print set cost her mental energy she didn't need to spend. The data was clear. She should have trusted it. 3, she would have raised prices sooner. She was afraid of customer pushback, but most of the price increases had almost no impact on conversion. She'd been leaving money on the table out of fear. The lesson, do the math, trust the math, act on the math. The emotional resistance you feel is not a signal that you're wrong. It's just resistance. Where is Rachel now? She's projecting $2.4 million for this year, more revenue than before, but with the new cost structure. If she hits it, she'll net about $115,000, more than double what she made on similar revenue before. She launched two new products this year. Both went through the unit economics analysis before they launched. Both are in scale territory from day one. She'll never launch a product without running the numbers first. Again, the leather collar is still in the catalog. It's stabilized at about 24% contribution margin. Not a hero anymore, but a solid contributor. She's made peace with that and she's thinking about hiring for the first time ever. Not because she has to, but because the business can afford it and she wants to grow. That's the shift. From surviving to building. Let me recap what we covered this month and how Rachel's story proves it works. Week 1, we talked about the difference between gross margin and contribution margin. Rachel thought she had 68% margin on her collar. She actually had 11%. The spreadsheet revealed the truth. Week 2, we walked through the 8 costs between the invoice and profit. Rachel's collar had problems at every level: shipping, fulfillment, returns, customer service, CAC. You can't fix what you can't see. Week 3, we introduced kill, fix, or scale. Rachel had 9 products to kill, 9 to fix, 5 to scale. The framework forced decisions that she'd been avoiding for years. Week 4, today, the proof: 72% more profit, 7% less revenue, 40% fewer SKUs, 20 fewer hours of work per week. This is what happens when you run your business on real numbers instead of vibes. When you make decisions based on contribution margin instead of gross margin. When you have the courage to kill what isn't working. Here's what I want you to take away from Rachel's story. You don't need to get bigger to get profitable. Sometimes you need to get smaller. Sometimes the path to more money is fewer products, not more. The data is in your systems. Right now, waiting for you to look at it. The unit economic spreadsheet isn't complicated. It's just work. And it's work that will change how you see your business. The hardest part isn't the math. It's the decisions. It's killing products you love. It's accepting that your hero might be your villain. It's trusting the numbers when your gut says otherwise. Rachel did it. You can do it too. If you want help, you know where to find us. The Slack community is full of founders doing this exact work. The link is in the show notes. That wraps up our February series on unit economics. 4 episodes, 1 complete framework, everything you need to know to see your business clearly. Next month, we're tackling inventory. How much is too much? How much is too little? How to stop tying up cash in products that sit? How to stop losing sales to stockouts? The math and the strategy for getting inventory right. I'm Lara Guevara. This is Supply Chain Moves, and I'll see you next week.