When to fire a product line

Every catalogue has a laggard. It shows a loss once overhead is allocated to it, it takes up attention and shelf space, and the obvious move is to discontinue it.

Do that on the allocated number and profit will often fall. The overhead charged to that line does not leave with it — the rent, the supervisor, the software all remain, now spread across fewer lines. You removed the contribution and kept the cost.

Ask what actually disappears

The only correct basis for the decision is avoidable cost: what genuinely stops when the line stops. Materials and direct labour do. Line-specific equipment leases, dedicated staff, and specific marketing might. A share of the building does not.

Then ask what happens to everything else

Products do not exist in isolation, and the second-order effects are where most of the real answer lives.

• Does it pull other sales? A low-margin line that brings customers who buy profitable things is earning its keep somewhere other than its own P&L row.
• Does it complete a range? Customers who need a full catalogue may take all of it elsewhere if you drop one part.
• Does it absorb slack? A line that fills otherwise idle capacity is contributing even at thin margins.
• Does it carry a fixed cost you cannot exit? A lease with three years to run does not care whether you still make the product.

The cases where dropping it is right

Contribution margin genuinely negative — every sale loses money before any overhead — is the unambiguous case. Stop immediately; volume is making it worse.

The other strong case is opportunity cost. If the line occupies a constrained resource that something else could use more profitably, dropping it is right even with positive contribution. That is not a product decision, it is a capacity decision, and it only holds if you can actually fill the freed capacity.

Fix it before you kill it

A line with thin but positive contribution usually has cheaper options than discontinuation. Raise the price — a laggard is often one nobody has repriced in years, and it is the least risky thing to test because you were prepared to lose it anyway.

Or cut its variable cost, reduce the range within the line to the SKUs that sell, set a minimum order that removes the uneconomic small orders, or stop actively selling it while continuing to fulfil demand that arrives on its own.

If you do drop it, plan the exit

Decide what happens to the inventory before you announce anything, tell the customers who buy it before they discover it, and diarise a check six months later to see whether the overhead you assumed was unavoidable actually turned out to be.

That last step is the one nobody does, and it is where the learning is. Some of the cost you treated as fixed will have quietly gone away, and some of the sales you assumed were independent will have left with the line.