The long tail: products that quietly cost you money

Most owner-managed manufacturers and wholesalers can name their best customers. Fewer can name the products that cost them money. The usual suspects sit in the long tail: dozens or hundreds of items that sell a few units a quarter, each one making the business a little more complicated to run.

This is the second article in a five-part Aiko Insights series on margin. It moves from customers to products. The short version: a product can show a healthy gross margin on paper and still lose money once the cost of making, storing and handling it in small quantities is counted.

Where the series fits

The five articles are meant to be read in this order:

1. Why your average margin lies: why one blended margin hides the difference between customers.
2. This article: the same problem, seen product by product.
3. Passing on UK cost rises without losing customers: what to do about prices once you know where margin is made.
4. Cost-to-serve: small orders and delivery terms that eat margin: the customer-side costs that sit below gross margin.
5. What a Business Health Check looks at, and what owners learn: how the method behind the series is applied to your own figures.

If you have already read the first article, you know the idea: averages hide the winners and the losers. Here we apply it to the catalogue.

Why the tail costs more than it shows

A product's selling price and material cost are easy to see. The cost of complexity is not. Hackett Group, writing on long-tail SKUs, argues that the cost of managing a multitude of SKUs can outweigh the benefits expected when they were launched. Common causes it lists include launching new products without retiring old ones, keeping items for historical reasons, and adding variants in response to competitors or customer pressure.

In a factory, the cost shows up as shorter production runs, more changeovers and more material variants to buy and hold. In a distributor, it shows up as stock that moves slowly, more pick locations and more forecasting error. None of these appears in the unit cost on a price list, so slow sellers look better than they are.

McKinsey, in its work on complexity in consumer goods, puts a figure on the scale for one sector: it estimates complexity costs food and beverage manufacturers as much as $50 billion in gross profit in the US alone. That is an estimate for large manufacturers in another market, not a UK benchmark. The mechanism is what matters for a 50-person business, and it is the same.

Why now

Input costs are moving faster than selling prices. The Office for National Statistics reported that in August 2026 UK producer input prices rose 6.1% year on year, while output prices rose 3.7% (ONS, released 16 September 2026). That gap is margin that has to be recovered somewhere.

Make UK's Q3 2026 Manufacturing Outlook shows the effect on the ground. Its balance of manufacturers reporting UK margins over the past three months was -16%, even though price-setting behaviour was still rising, with a balance of +30% for UK prices. Make UK's reading is that cost increases are outpacing firms' ability to price them through.

When every product's cost rises, the products with thin real margins are the first to turn negative. The long tail is where those are most likely to hide.

A way to find the products that cost you money

You do not need new software to start. You need two lists and some honesty about allocation.

Step one: rank by total contribution, not by margin percentage. For each product, take annual revenue less materials, direct labour and direct delivery cost. Sort the products from highest to lowest total contribution in pounds. Look at the cumulative total as you go down the list. See how much of the total the top products produce, and how little the bottom quarter adds.

Step two: load the complexity costs onto the bottom quarter. For each product in that quarter, estimate what it adds: setup or changeover time per batch, number of batches per year, stock held and for how long, special packaging or materials, and time spent by sales and purchasing. For illustration, a product that sells 40 units a year but needs a dedicated set-up of two hours each time it is made carries a cost that no unit-cost sheet shows. The numbers will be rough. Rough is fine; the aim is to find the products where the sign changes.

Step three: check what you would lose. McKinsey cautions that simply cutting the lowest-volume items can backfire, for example by removing an item that plays a strategic role for a customer, or by raising the unit cost of other products made on the same line. Before dropping anything, check which customers buy it and what else they buy with it. This is where the customer view from the first article earns its place.

Four decisions for each product in the bottom quarter

Each product gets one of four outcomes:

• Reprice. If customers need the product and value it, the price should carry its true cost. The third article in the series covers how to do this selectively.
• Set a minimum order quantity or batch size. Make or buy the item in larger, less frequent batches, and pass the benefit or the constraint to the customer through terms.
• Combine. Merge near-identical variants, sizes or specifications into fewer items.
• Withdraw. Stop selling it, with notice to customers, and run down the stock.

Writing down the decision and the date, even when the decision is to keep the product as it is, matters more than the choice itself. Products stay in catalogues because nobody ever decided they should.

What to check this month

• Produce a list of all products ranked by total contribution in pounds, not percentage margin.
• Mark the bottom quarter and, for each, write down how many times it was made or ordered last year.
• Estimate the set-up, handling and stock-holding cost of ten of those products, and note which turn negative.
• For each negative product, list the customers who buy it and what else they buy.
• Assign one decision (reprice, minimum quantity, combine, withdraw) and a date to each.

Where to go from here

The tail is only one of the places margin leaks. If you would like to see your own products and customers laid out this way, the Business Health Check is where to start. The next article in the series, on passing cost rises on without losing customers, picks up from the decisions above.