Every D2C brand knows they're losing money somewhere. The challenge isn't awareness—it's knowing exactly where to look. After analyzing profitability data from dozens of brands, we've identified six distinct categories where profit consistently disappears after the sale is made.
This framework isn't theoretical. It's derived from real-world analysis of where ₹127+ Crores in profit leakage was hiding across 47 D2C brands.
The 6 Profit Leak Categories
1. Inventory Leaks
Dead stock, stock-outs, overproduction, and carrying costs. This category alone accounts for 31% of all profit leakage we've identified. Most brands know they have inventory issues but drastically underestimate the financial impact.
2. Margin Leaks
The gap between perceived and actual product profitability. SKU-level analysis consistently reveals that 20-30% of products lose money when all costs are properly allocated. Yet brands continue promoting and stocking these margin destroyers.
3. Operations Leaks
Returns processing, packaging inefficiencies, fulfillment errors, and customer service costs. These operational costs are often treated as “fixed overhead” when they're actually highly variable—and reducible.
4. Logistics Leaks
Shipping overcharges, weight discrepancies, zone classification errors, and RTO costs. Logistics partners are not incentivized to optimize your costs—you are. Most brands overpay by 8-15% on logistics alone.
5. Geographic Leaks
Not all pincodes are created equal. Some are profitable, others destroy value with every order. Without geographic profitability analysis, brands subsidize unprofitable regions with profits from strong markets.
6. Vendor Leaks
Supplier overcharges, contract drift, payment term violations, and quality-related costs. Long-term vendor relationships often lead to creeping costs that go unexamined. Annual audits consistently find 5-12% in recoverable overcharges.
How to Use This Framework
Start with a simple assessment: rate your visibility into each category from 1 (no visibility) to 5 (complete, real-time visibility). Most brands score below 2 on at least four categories.
Next, estimate the annual revenue flowing through each category. Inventory carrying costs, logistics spend, returns volume—these numbers frame the opportunity size.
Finally, prioritize based on opportunity × visibility gap. The categories with the largest financial flows and lowest visibility scores are where profit is most likely hiding.
Want Us to Run This Analysis for You?
Our Complete X-Ray service systematically audits all six leak categories.
Book Discovery Call →