SKU rationalization at year-end means ranking every product on twelve months of contribution after all variable costs, then sorting the bottom of the list into three groups: SKUs with a fixable problem, SKUs that need less inventory, and SKUs that should go. Twelve months matters because it includes a full Q4 and a full slow season, so neither flatters nor buries a product. Contribution has to include referral and fulfillment fees, ad spend, refunds, and storage at the SKU level. A ranking on revenue or gross margin will keep the wrong products and cut the wrong ones.
The data is complete. December's settlements close in early January, the inventory counts for the year-end close are fresh, and you have one clean cost basis per SKU from the FIFO layers that the count just confirmed. The decisions also land at the right time. A SKU cut in January does not get a spring reorder, and the cash that would have gone into that purchase order goes somewhere else.
There is a second reason specific to 2026. Amazon's fee basis moved twice during the year. Amazon's selling partners site announced on October 15, 2025 that US FBA fees would rise by an average of $0.08 per unit, effective January 15, 2026. Seller Central's FBA fee page then added a 3.5 percent fuel and logistics surcharge on fulfillment fees starting April 17, 2026. A ranking built from a fee assumption in a spreadsheet, rather than the fees charged on each settlement, will be wrong for most of the year on low-priced items, where a few cents is a real share of margin.
For each active SKU, twelve months:
Then sort on two columns: contribution in dollars and contribution per dollar of average inventory. The first shows what a SKU earns. The second shows what it earns on the cash tied up in it. A product that clears $2,000 a year while sitting on $20,000 of stock is a worse use of money than one clearing $1,500 on $1,500.
Illustrative numbers. Take a seller with 140 active SKUs on Amazon and Shopify. Three products from the bottom quartile, twelve months each. The fulfillment fees below are illustrative; the 15 percent referral fee is the Home and Kitchen rate on Amazon's sell.amazon.com pricing page.
Contribution: $18,400.00 minus $7,360.00 minus $5,520.00 minus $3,100.00 minus $1,290.00 minus $640.00 equals $490.00. That is 2.7 percent of revenue. Before ads it was $3,590.00, or 19.5 percent.
Contribution: $6,200.00 minus $2,170.00 minus $1,860.00 minus $310.00 minus $1,150.00 equals $710.00, or 11.5 percent. On $5,810.00 of average inventory, that is about 12 cents a year per inventory dollar. Turns: $2,170.00 of COGS divided by $5,810.00 of average inventory equals 0.37 times a year.
Contribution: $9,800.00 minus $4,480.00 minus $4,235.00 minus $900.00 minus $560.00 minus $260.00 equals negative $635.00. Before ads it is $265.00, or 2.7 percent.
All three would show up on a "bottom 30" list. They need three different decisions.
P is a fix. The product earns 19.5 percent before advertising. The problem is $3,100.00 of spend that bought sales at a cost the margin cannot carry. The question is how many of those sales the ads caused. If half the ad-attributed orders would have happened anyway, cutting spend by half loses fewer sales than the campaign report suggests. Test it, measure, and decide in February.
Q is a shrink. The unit economics are fine. The inventory position is not. At 0.37 turns, the seller holds more than two and a half years of stock at current velocity, and storage eats more than the refunds and more than 60 percent of the fees. The answer is a smaller reorder quantity, or moving part of the stock out of FBA to a cheaper warehouse, not a cut. The aged units may need the cash-contribution treatment described in deciding whether to liquidate or discount.
R is a cut, unless a price test says otherwise. Even with zero advertising, R earns $265.00 a year on $4,480.00 of cost. Fees take 43 percent of its price because a $14.00 item still pays a fulfillment fee sized for its weight. The one escape is a higher price. At $16.00 the referral fee rises to $2.40, but the unit contribution before ads goes from $0.38 to roughly $2.08 if refunds and storage per unit hold, so a small volume loss would be acceptable. If the market will not hold $16.00, stop reordering and sell through.
Checking the per-unit figures: $265.00 divided by 700 units is $0.38. At $16.00: $16.00 minus $6.40 minus $2.40 minus $3.95 minus $0.80 of refunds per unit ($560.00 over 700) minus $0.37 of storage per unit ($260.00 over 700) equals $2.08.
A ranking does not know that a wholesale buyer takes your full line or none of it. It does not know that SKU R is a component in a bundle that earns well. It does not know your supplier's minimum order quantity, which may make the smaller reorder for Q impossible without a price increase from the factory. Each cut candidate needs a short review against those facts before the listing comes down.
The ranking is only as good as the per-SKU fee and COGS lines underneath it. ConnectBooks reconciles Amazon settlements and other channels and syncs them to QuickBooks or Xero, runs FIFO COGS with landed cost, and reports profit by SKU and channel. The method for keeping those numbers trustworthy through the year is in how to track SKU profitability.
Crunch, the AI analyst inside ConnectBooks, takes questions about margins by SKU and inventory planning against that reconciled data. A seller can ask which products were profitable in the first half but lost money in the second, or what pausing ads on SKU P did to its profit in the weeks after. Crunch finds what changed, compares the right periods, names the products responsible, explains why, and recommends a next step.
Its limits are the same as the ranking's. It cannot see the wholesale contract, the bundle logic, or the supplier's minimums unless that information is in the data. It cannot estimate how a price change will move volume before you run the test. If landed cost is missing on a SKU, any margin it reports for that SKU is wrong. And it does not delist products or cancel purchase orders. The cut decision, and the conversation with the supplier, stay with you.
Running an e-commerce business comes with plenty of challenges, but ConnectBooks is here to make your life easier. With real-time insights, seamless integrations, and detailed tracking of your profitability and inventory, you can stay ahead of the game. Whether you’re selling on Amazon, Shopify, Walmart, TikTok or eBay, ConnectBooks helps you manage your finances with 100% accuracy and confidence, so you can focus on growing your business.
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