Earlier this year we onboarded an exciting new client.
Great product, emerging market, solid growth year over year, lean fixed costs, inventory stocked in their best sellers.
For all intents and purposes we were staring at a fantastic business.
But they are missing the one thing that was holding them back from really going for it… the RIGHT inventory.
Digging in, the inventory issue isn’t as straightforward as stocking the highest volume SKUs. They have plenty of those in stock.
The issue was the products driving ad spend were being severely neglected.
Here’s what we found.
Their catalog has two types of products.
The flashy SKUs that stop the stroll and make advertising work, which we call CAC products.
And LTV products, which actually move, drive repeat purchases, and convert once someone lands.
They both matter, but they serve completely different purposes.
This brand was fully stocked on LTV products and constantly out of stock on CAC products.
And it’s hard to knock them. The logic was there. They bought and stocked what was selling.
The problem is that without CAC products in stock, ads stop working.
No inventory to advertise against means no efficient spend, which means no traffic, which means the LTV products can’t sell. No matter how well stocked they are.
The buying rhythm was built off the wrong signal.
Sell-through data pointed to high velocity LTV products every time.
CAC products don't light up a sales report. They light up an ad account.
Without a way to see both signals at once, the brand kept making a reasonable decision that was slowly dismantling its own acquisition engine.
When we plotted their catalog using our Contribution Margin by Product tool, the picture became clear.
LTV products sat in the upper-left quadrant: high revenue, low spend.
CAC products were in the lower-right: high spend, lower revenue.
On a sell-through report that's the cut list. On the matrix it's the acquisition engine.
Once they built safety stock around CAC products and stopped treating sell-through as the only input to their buy, the advertising engine turned back on.
It's not about having inventory. It's about having the right inventory. Most brands don't find out the difference until their ads stop working.
Try it out for yourself → Contribution Margin by Product
If you’re interested in discussing how this works within your business → Book a Call
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