Why velocity alone is the wrong metric to allocate by
The intuitive approach is to send more inventory to whichever channel sells fastest. That's incomplete: a channel can move more units while returning less profit per unit, once you account for that channel's specific referral fees, fulfillment fees, advertising cost of sale, and return rate. Allocating purely by velocity can mean systematically starving your most profitable channel of stock in favor of your highest-volume-but-thinnest-margin one.
Allocate by contribution margin, not raw sales
Contribution margin per unit = Selling price − variable costs specific to that channel (referral/commission fee, fulfillment fee, payment processing fee, typical advertising cost allocated per unit, and an allowance for that channel's return rate).
Worked example. You have 500 units of a SKU to allocate between two channels this cycle.
| Channel A | Channel B | |
|---|---|---|
| Selling price | $30 | $32 |
| Referral/commission fee | $4.50 | $4.80 |
| Fulfillment fee | $5.00 | $6.50 |
| Typical ad cost per unit | $2.00 | $4.00 |
| Contribution margin per unit | $18.50 | $16.70 |
| Recent weekly sell-through | 40 units/week | 55 units/week |
Channel B sells faster, but Channel A returns about $1.80 more profit per unit. If both channels can plausibly absorb more volume without demand falling off (i.e., neither is already saturated), weighting the allocation toward Channel A's higher contribution margin — while still giving Channel B enough stock to sustain its stronger velocity — generally outperforms a pure velocity-based split.
Building the actual split
A practical approach: allocate a base quantity to each channel sufficient to sustain its own reorder point and safety stock (see How to Calculate Safety Stock calculated per channel, if you track sales separately by channel), then allocate any remaining discretionary units toward the channel(s) with the strongest contribution margin — provided that channel has the demand to actually absorb the extra stock at a similar margin (don't assume margin holds constant if you'd need aggressively increased ad spend to move the extra units).
When velocity should still win
Contribution margin isn't the only consideration. A channel with lower margin but meaningfully higher velocity may still deserve priority if:
- Stockout risk is higher there — a channel selling fast will hit its reorder point sooner, and running out on a fast channel usually costs you search ranking there, compounding the loss.
- The channel is strategically important beyond this SKU — e.g., it's your primary growth channel and an early stockout would damage momentum you're actively building.
- The margin difference is small relative to the velocity difference — a 5% margin gap rarely justifies starving a channel that's moving 3x the units.
Revisit the split regularly, not once
Fee structures, ad costs, and channel-specific demand all shift — a split that made sense last quarter can be meaningfully wrong today if one channel's fees changed or its ad costs crept up. Recalculate contribution margin by channel on the same cadence you review safety stock and reorder points, and adjust the allocation accordingly.
A note on pooled vs. dedicated inventory
Some fulfillment setups let you pool inventory and fulfill multiple channels from one stock location (reducing total safety stock needed, since one buffer covers combined demand variability); others require dedicating physically separate stock per channel (e.g., inventory committed to one marketplace's own fulfillment program). Know which situation you're in — pooled inventory changes this from a hard allocation decision into more of a fulfillment-routing question, while dedicated inventory makes the upfront split genuinely consequential.