How MarginOS flags Too Close to Cost
Quick Reference
Inputs
30 days of direct-to-consumer sales; a landed cost for the item, since the floor is derived from it; optionally your own floor proportion and hero velocity level in settings.
Outputs
A flag on qualifying products in Catalog Profit and a matching filter. Products with negative per-unit profit are excluded and reported as a separate condition.
Outcomes
Catch products whose absolute contribution is too small for the capital they tie up, including cheap items that look acceptable as a percentage, and tell that apart from outright loss-makers.
Too Close to Cost marks a fast-selling product that still makes money, but not enough of it per unit relative to what the item costs you. It is the flag that catches products which look acceptable as a percentage and are quietly failing in dollars.
What the flag means
MarginOS raises it when a product meets three conditions over the last 30 days:
- It is a fast seller for your store — the same hero velocity gate used by High Velocity, Low Yield.
- It is profitable — per-unit profit is above zero. A loss-making product is a different, more urgent condition and is reported separately.
- Its per-unit profit is below the margin floor for that item.
The floor scales with the product
This is the part worth understanding, because it is what makes the flag useful across a mixed catalogue.
The floor is not one dollar figure applied to everything. It is set as a proportion of each item’s own landed cost, so an expensive product must clear a proportionally larger per-unit profit than a cheap one. A $4 accessory and a $200 jacket are held to standards that scale with the capital each one ties up.
A single store-wide dollar floor would be useless here: it would flag every inexpensive item and almost no expensive one, which is exactly backwards from where the money is. MarginOS ships a sensible default proportion and you can change it in settings.
Why this is a separate flag from Low Yield
They share the velocity gate and then diverge, because percentage-thin and dollar-thin are genuinely different failures:
| High Velocity, Low Yield | Too Close to Cost | |
|---|---|---|
| Tests | Margin as a percentage of revenue | Profit in dollars per unit, against the item’s cost |
| Typically catches | Products priced too near their total delivered cost | Products whose absolute contribution is too small for the capital they consume |
| Blind spot it covers | A high-priced item can look fine in dollars while its percentage is poor | A cheap item can show a respectable percentage on trivial absolute profit |
A product can carry both flags, one, or neither. Both are worth acting on; they simply point at different fixes.
Why “still profitable” is part of the test
Excluding loss-makers is deliberate. A product losing money on every sale needs a decision this week and is surfaced as its own condition. Folding those into this flag would bury genuinely urgent items in a longer list of merely-disappointing ones, and blunt both.
So read Too Close to Cost as: this is working, but the margin is thinner than the cost of carrying it justifies.
What to do about it
- Verify the cost basis. The floor is derived from the item’s landed cost, so an inaccurate cost moves the floor as well as the profit. Check Data Trust for the product first.
- Look at what is consuming the margin. Fulfillment and payment fees are in this figure. On low-priced items, per-order costs routinely outweigh product cost.
- Consider the bundle or the minimum order. Dollar-thin items often become healthy when they stop shipping alone.
- Or price it. Small increases move per-unit profit disproportionately on items that sit near their floor.
Common questions
Is this the same as “Below Margin Floor”?
Yes. “Too Close to Cost” is the shipped name for the flag; “below margin floor” describes the underlying test. Both refer to the same condition.
What is the floor set to?
A proportion of each item’s landed cost, so the threshold differs per product. MarginOS applies a default proportion until you set your own in settings, where you can also see the resulting floor for a given item.
Why is a barely-profitable product not flagged?
Most often because it does not sell fast enough to clear the hero velocity gate. This flag is scoped to your best sellers deliberately — a thin margin on a product nobody buys is not where the money is.
My product is losing money. Why does it not show this flag?
Because the flag is for profitable-but-thin products. A negative per-unit profit is a separate and more serious condition, reported on its own so it does not get lost among these.
The flag cleared without me changing the price. What happened?
Either per-unit profit rose above the floor — a lower fulfillment or product cost, a better sales mix, fewer returns — or the floor itself moved because the item’s landed cost changed. Since the floor is proportional to cost, a cheaper item to source lowers the bar it has to clear.
Related
- High Velocity, Low Yield — the percentage version of this question, sharing the same velocity gate.
- How MarginOS calculates Gross Profit (CM1) — the per-unit profit this flag tests.
- The Defensible Profit Model — how the landed cost behind the floor is graded for exactness.
- Store-wide cost defaults — the fallback when an item has no cost evidence of its own.
About the author
Aron Baczoni is the founder of MarginOS and a former decade-long veteran of Google's Ads and Global Business Operations units. His work is focused on bridging the gap between AI's promise and its practical implementation for direct-to-consumer (DTC) brands, helping them build a sustainable competitive advantage through strategic, high-ROI AI solutions.
Read Aron's story