Strategic Planning

Product Mix Optimization: Phase Out Low-Margin Items for Winners

Knowing your unprofitable products is step one. Actually removing them from your catalog is step two—and it requires strategy, timing, and customer communication. This article walks through the process of restructuring your product mix to maximize profit without alienating existing customers or losing revenue.

Why Optimize Your Product Mix Now?

Once you've identified unprofitable products, action is urgently needed:

Cash drag: Every day you make a losing product, you're hemorrhaging money.
Opportunity cost: That production time could go toward scaling winners.
Mental burden: Managing losers distracts from focusing on the vital few.

Three Levels of Product Mix Optimization

Level 1: Repricing (Least Disruptive)

Before discontinuing, try repricing. A 15-25% price increase often shifts a product from unprofitable to acceptable without losing all demand.

Example: You have a product losing $5/unit at $40. Raise it to $50. If you only lose 20% of volume, you've improved profitability significantly.

Timeline: Test repricing for 30 days. If sales stay stable or volume drop is <20%, keep the new price. Otherwise, proceed to Level 2.

Level 2: Bundle or Rebrand (Middle Ground)

Instead of killing the product, reposition it. Bundle it with high-margin items or rebrand it as premium/limited-edition.

Example: Pair unprofitable scarves with high-margin jewelry as a "gift bundle." The bundle price masks the scarf's low margin.

Timeline: Launch rebranded version and monitor for 60 days. If bundled/repositioned product now has acceptable margin, keep it. If not, proceed to Level 3.

Level 3: Discontinuation (Necessary Evil)

Sometimes repricing and bundling don't work. The product needs to go. This requires a strategic phase-out to minimize customer impact.

Timeline: Plan a 60-90 day wind-down process (explained below).

The Discontinuation Playbook: 90-Day Phaseout

If repricing and bundling fail, here's how to discontinue profitably:

Week 1-2: Analysis & Notification

Internal: Calculate remaining inventory, identify repeat customers, plan communication.

Communication: Email repeat customers: "This product has been wonderful, but we're retiring it to focus on our core collection. Last chance to order before [date]."

Action: Offer a final "Last Chance" discount (10-15%) to encourage last orders and clear inventory.

Week 3-6: Clearance Phase

Pricing: Increase discount to 20-30%. This signals finality and clears remaining stock.

Visibility: Keep it visible in your shop but with clear "Final Clearance" messaging.

Goal: Move at least 70% of remaining inventory by end of week 6.

Week 7-8: Final Push

Messaging: "This is your final week. After [date], it's gone forever."

Pricing: Deep discount (35-50%). At this point, you just want to clear stock.

Goal: Achieve 90%+ inventory clearance by end of week 8.

Week 9-12: Removal

Action: Delist the product from all sales channels (Etsy, Shopify, website).

Final inventory: Whatever remains, either repurpose as gifts, donate, or mark down to cost.

Customer communication: Thank customers who bought it: "Thank you for supporting this product. We've freed up capacity to focus on..."

Pro tip: This 90-day window is crucial. A slow, transparent phaseout retains customer trust. Abruptly disappearing products without notice can anger loyal customers.

Real Example: The Math of Discontinuation

Suppose you have a product with:

Current State (Losing Money)

Price	$35
Cost per unit	$42
Loss per unit	-$7
Monthly volume	20 units
Monthly loss	-$140

Option 1: Repricing Test

Raise price to $48 (37% increase). Assume 30% of customers switch away.

New price	$48
New volume (70% of 20)	14 units
New profit per unit	$6
Monthly profit	$84

Result: Turned -$140 loss into +$84 profit. Keep the product.

Option 2: Bundling Strategy

Bundle 1 unprofitable item ($35 cost $42) with 1 high-margin item ($25 cost, $80 price) as a $110 bundle.

Bundle price	$110
Bundle cost	$67 ($42 + $25)
Bundle profit	$43
Monthly bundles sold	15 (vs 20 individual items before)
Monthly profit	$645

Result: Bundling makes both products more valuable and profitable.

Option 3: Discontinuation (Revenue Impact)

You discontinue the product. That production capacity (40 hours/month) moves to your top-performing product, which has $25 profit/unit and takes 2 hours each.

Lost product profit	-$140/month
Freed capacity	40 hours/month
New units of top product	20 units (40 hrs ÷ 2 hrs/unit)
Gained profit	$500 (20 × $25)
Net impact	+$640/month

Result: Discontinuing and redirecting capacity to winners is most profitable, but requires customer communication.

Decision Framework: Which Optimization Level?

Use this flowchart to decide your next move for each unprofitable product:

Is the product unprofitable primarily due to LOW PRICE?

→ YES: Try REPRICING first (Level 1). Test a 15-20% increase.

→ NO: Proceed to next question.

Does it have repeat customers or complement your profitable products?

→ YES: Try BUNDLING (Level 2). Pair with high-margin winners.

→ NO: Proceed to discontinuation.

Do you have excess production capacity?

→ YES: DISCONTINUE (Level 3). Redirect capacity to winners for bigger profit gains.

→ NO: REPRICING or BUNDLING might be safer to avoid losing revenue.

Optimize Your Product Mix Today

TrueCraft tracks which products are profitable, which are drains, and recommends optimization strategies. See the full picture and make confident decisions about your catalog.

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