Headline margin is taken at the shelf, before the deductions that actually decide whether a product made money: trade and promotional spend, returns and shrink, end-of-season markdowns, marketplace and channel fees. We rebuild margin from list price down to what truly stays, by product, channel and basket, so assortment and channel decisions rest on net margin rather than a category average.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Most retail reporting stops at gross margin: shelf price minus cost of goods. Everything that comes after sits in separate ledgers and central cost lines: the promotion that moved the volume, the returns the product attracts, the shrink, the markdowns to clear it, the commission or listing fee the channel takes. Each is real money off the same product, and none of it touches the margin the buyer is judged on.
So a category looks healthy while a few lines and channels inside it lose money on every sale, funded by the rest. The range gets managed on shelf margin and volume, which is precisely the metric that cannot see the deductions deciding the outcome.
LIST PRICE TO NET MARGIN
Illustrative. From shelf price down through cost of goods and the deductions a category margin never shows, leaving a thin net margin that decides whether the line actually pays.
One product, one cost of goods, the same recommended price and the same 42% shelf margin whether it sells in store or on the marketplace.
In store, returns are low and there are no platform fees. Online, returns run at 14%, the marketplace takes commission, and promotional funding is needed to stay visible.
Deduct the real costs and the in-store channel nets +24% while the marketplace channel slips to −6%, on the identical product.
Reprice for the channel, renegotiate the commission, or change the returns and promo model. The product can stay; the channel loss does not have to.
| Own store | Marketplace | |
|---|---|---|
| Recommended price | €40.00 | €40.00 |
| Shelf margin | 42% | 42% |
| Returns | 3% | 14% |
| Channel & promo fees | 4% | 19% |
| Markdowns | 5% | 9% |
| Net margin | +24% | −6% |
On the category report the product is a steady performer. By channel, one side is paying for the other, and only the net view tells you whether to grow the channel, fix its terms or step back from it.
EVERY SKU, BY REVENUE AND NET MARGIN
Illustrative. Plot the range by revenue and net margin and the loss-making lines a category average kept hidden separate clearly from the ones carrying the department.
Promotional spend, returns, shrink, markdowns and channel fees, gathered from the ledgers where they normally live apart.
Each deduction lands on the SKU and channel that caused it, with TDABC for the fulfilment and handling cost behind it.
Every line and channel carries a margin built down from shelf price to what actually stays, comparable across the range.
Products and channels sort by net margin. The losers become candidates to reprice, renegotiate, repromote or delist, each with a number.
Retailers who plan the range and the channel mix on net margin stop funding lines that lose on every sale and stop discounting the ones that quietly carry the category. The same model informs the buying terms, so negotiations with suppliers and channels start from the real cost of carrying a line.
The model is built on your data and handed over, so margin stays current as terms and promotions change.
The Profit Check takes five minutes and no data upload. It points to where shelf margin and net margin are most likely to diverge in your range, and what it is worth to see clearly.
In retail, cost to serve varies two to three times between accounts, stores or channels of the same revenue, because markdowns, returns, shrink, fulfilment and trade spend land unevenly. Costing only gross margin hides that roughly 20 to 40 percent of SKUs or accounts run below total cost once cost to serve is loaded. TDABC assigns those hidden costs to the store, channel and SKU that caused them, so every line shows its real net margin.
Demand forecasting that trims markdowns and shrink, markdown optimisation that protects margin late in the season, and fulfilment automation that lowers the cost of an online order. None of those gains can be valued without a cost-to-serve baseline per channel and SKU. The retailers that win are the ones who already know their real net margin before the AI changes the workflow.