Best-selling add-on: biggest Margin leak

Challenge

We were brought in after an acquisition to optimize, and then grow the new business. Since expense tracking and POS data were only at category levels we were a great fit.

While their broad product mix contributed to the ambiance, seeing so many vendors deliver so many mixed products drove home the need to get true actual SKU-level margin calculations.

Approach

Low credit card processing fees pushed us to keep the aging POS, maxing out its capabilities. We also met each vendor at their most automated level of integration. Being an independent and local focused cafe, this was often an emailed pdf.

After connecting sales and expense data, we built the per-product margin analysis, identifying the biggest contributors and biggest margin leaks. We then looked at biggest sellers by quantity, average order value and the most common combinations.

Outcome

The best-selling add-on, a product brought in from a supplier, was among the lowest-margin items on the menu. It wasn't why customers came in, so it could be changed without affecting sales of the main SKU it bundled with.

The cafe switched to an easy made in-house by scratch item. Same slot, slightly lower price, significantly better Product Margin. Profit rose by 3% of revenue, from this one simple swap.

What we learned

High volume doesn't rescue a thin margin. It hides it while cannibalizing customer spend that could've contributed much more elsewhere. Only Product-level Margin Calculations tell you which SKUs are contributing and which are not.