As an Amazon seller, you wouldn’t have a business without inventory. And you wouldn’t be able to grow your business without a solid inventory management strategy.
After all, if you consistently run out of stock or have the bulk of your income tied up in stale inventory, you’re not going to grow. Instead, you’ll lose the Buy Box, give your competitors the upper hand, and put your Amazon account at risk.
But you don’t have to worry about any of this if you have a solid inventory management strategy in place. So where to begin? Here are five ways to turn more inventory, increase your margins, and grow your Amazon business:
1. Optimize Product Price (from Both Sides)
What do I mean by “from both sides”? Well as an Amazon seller, you have two product prices to think about: how you’re going to price your products on Amazon, and how much you’re going to pay to source them.
For your selling price, you want to make sure you’re not pricing too low — sure, this is tempting because it means high volume sales, but your inventory will likely sell out before you’re able to replenish it. Conversely, if you set too high a price, your inventory won’t sell at all. To figure out the right selling price for your product, research its pricing and sales histories through an Amazon seller scanning app or through an Amazon repricer.
For your buying price, you’ll need to a) negotiate with your suppliers, or b) shop around for the best offer. Ultimately, you want to pay the lowest price to maximize your margins.
2. Set and Monitor Minimum Stocking Level
You never want your inventory levels to reach 0 — otherwise, you’ll have to deal with an Amazon stockout and all its repercussions. Instead, look at the sales history and sales velocity to determine how much stock, at a minimum, you should have on hand at a given time. Then set inventory alerts either through Seller Central or an inventory management program, so you will know when to order more.
You can create a minimum stocking level for your inventory, so you can reorder stock when your stock below the minimum level. For example, if your minimum stocking level is 30 and you reached 28 or 29 pcs on hand, you’d need to stock more because you’d be below your minimum stock level.
How to calculate your minimum stocking level?
(Average Daily Unit Sales X Days It Takes for New Inventory to Arrive) + Safety Stock
Safety stock is similar to the minimum stock level, but it’s an additional quantity to reduce the risk of stockouts if there are delays.
Note: You can learn more details about the minimum stocking level and its formulas in this article.
3. Communicate with Your Suppliers
Keeping an open line of communication with your suppliers is key to a successful inventory management strategy. Regardless of your business model on Amazon— retail arbitrage, wholesale, dropshipping — you need to manage the supply chain. This means understanding how long it takes to source inventory, what production cycles and shipping times look like, etc.
In addition, talk to them about sales velocity — including theirs and yours. You should know when their busiest times of year are and how lead times are affected just as they should know when you’ll have larger and/or more frequent orders.
As long as you’re on the same page and keep an open line of communication, there shouldn’t be any surprises when you need to order more inventory.
4. Invest in Inventory Management Software
There are several inventory management programs that help Amazon sellers closely monitor their stock levels and prevent both an Amazon stockout and an inventory surplus. Many will even calculate important inventory-related metrics for you — including your minimum viable stock level and your reorder point — and send you alerts so you don’t have to check yourself every single day.
5. Maximize Cash Flow
Having consistent access to cash is critical for your storefront’s growth — especially when it comes to inventory management. After all, you could have a surprise surge in sales and need to place an unexpected inventory order ASAP. Or, maybe your supplier decides to run a last-minute limited-time offer that is too good to pass up, only you don’t have the funds to take advantage.
Simply put, if you have a readily available source of funds, you can buy — and turn — more inventory more quickly. But as an Amazon seller, cash flow is tight. It certainly doesn’t help that you have to wait at least two weeks for your income, but fortunately, there’s a solution: SellersFunding.
SellersFunding gives sellers access to 80% of their receivables of your previous day sales for a 2% flat fee on gross sales. So, if you make a sale on Monday, you’ll get cash as soon as Tuesday — cash that you can reinvest in buying more inventory, allowing you to sell faster and increase profitability.
Inventory management is essential for all online sellers. Don’t let poor inventory management ruin your profit and reputation. By using these inventory tips, you will achieve effective inventory management and keep your Amazon business growing.