*This is a guest post by Becky Trowbridge, Managing Content Editor at eComEngine.
Effective inventory management is more important than ever, especially if you’re an Amazon seller. In the past year, Amazon has introduced monthly long term storage fees for slow moving inventory, increased FBA fees, and launched the new Inventory Performance Index (IPI) metric.
There have also been improvements to the basic inventory management features available in Seller Central.
What these changes have in common is a mission to help Amazon merchants manage their inventory more effectively. Simply put, Amazon can’t afford to be a long-term substitute for your warehouse, garage, basement, attic, or another storage facility.
Although new fulfillment centers are opening all over the world, inventory needs to move steadily to keep the Amazon supply chain moving smoothly.
Keep It Moving
Amazon.com, Inc. (“Amazon”) has grown by leaps and bounds. In fact, it’s currently on the verge of becoming a trillion-dollar company. New third-party sellers are getting started each day and the Amazon Prime program has been incredibly successful, with more than 100 million members.
But, that incredible growth means that for Amazon to continue to scale quickly and manage perks like two-day (or faster) Prime shipping, stale inventory has got to go or make up for the real estate it consumes with additional fees.
Managing Inventory and Advertising Costs
There’s a fine balance between keeping enough inventory in stock to meet demand without overstocking. The equation gets even more complex when you factor in advertising.
If you’re planning to run Sponsored Product Ads, Facebook ads, or other campaigns throughout Q4, be sure to consider the potential increase in demand due to advertising.
An effective ad campaign can help you maximize sales during the busiest season of the year for most sellers, it’s important to make sure you have enough inventory to meet potential demand, especially if you source globally or have a long lead time.
“We run AMS defensive, offensive, headline and sponsored ads for all of our SKUs and of course our advertising team is always talking to our inventory team,” said Ted Repic of Rhino USA.
“When we have slow moving products our inventory team (in an effort to avoid Amazon long term storage fees) will get our marketing/advertising team to increase ad spend or run coupons or promotions to move inventory in order to avoid fees.”
“Also, when our ad team is increasing spend on campaigns with low ACOS and high movement, those comments are relayed to our inventory team in order to prepare for additional orders. Of course, we can see the increased sales inside of RestockPro so that software makes this process very simple!”
You’ll also want to consider your pricing strategy. Is your margin high enough to allow you to make a profit and offset the costs associated with your advertising campaign, sourcing, shipping, packaging, and all of the other factors that go into the item’s total cost?
Advertising a low margin product may make sense in some cases; perhaps you want to move through some inventory quickly or buyers have the opportunity to purchase a bundle of two or more of your items on the product page.
It’s great to experiment with advertising your products, but don’t commit large sums of cash without an effective advertising strategy.
Having a smart cash plan can help you build better relationships with your suppliers (because who doesn’t like to get paid sooner rather than later?) and determine how much you can earmark for Q4 advertising campaigns.
After all, “Cash in hand is the secret to getting the upper hand in the eCommerce business,” said Vicky Sullivan, Marketing Manager at Payability.
“If you offer to pay your suppliers early, chances are they will always return your calls, offer you discounts and move mountains when you ask for a favor. It not only helps you build relationships, it also differentiates you from the competition.”
If you’re planning advertising campaigns for your products, consider the content of your ads. What do your listings look like? Is there room for improvement when it comes to optimizing the description, adding updated product images, or requesting more buyer reviews?
Shoppers are eager to find the best product for that special someone on their gift list (or even for themselves) and it’s important to make sure that your Amazon listing makes a great first impression. No one wants to run ads that don’t convert to more sales!
If you’ve been selling on Amazon for more than a year, you’ve got the benefit of experience on your side.
Take a look at Q4 2017 (and previous years, if available) data to see sales trends and history for your top selling products. Here are some questions to consider as you evaluate the sales potential for your current products:
- How have trends changed in your niche since last year?
- What can your previous sales tell you about the potential sales for this year?
- Did you run into issues with over or under stocking last year?
- How much capital do you want to put into stocking previous top sellers versus new items?
- Has your estimated profit margin increased or decreased for each product in your inventory?
- Can you qualify for a discount or free shipping from your supplier?
- What can you do to streamline your supply chain?
A product that you could barely keep on the shelves in 2017 might not move much in 2018, so it’s important to know the market and the general projected life cycle for each product you sell.
This will give you an idea of how much more demand you can generally expect in Q4 based on previous sales history, but keep in mind that sales and demand can change drastically in that time-frame.
You’ll also want to look at Q2 2018 and the sales data you have for Q3 so far to help you get an idea of how quickly your inventory could sell.
Ted Repic of Rhino USA uses data from Prime Day to help him prepare for Q4.
“We are preparing for Q4 now (August 1) by reviewing our sales up to date for the year with a special focus on Prime Day since Prime Day sales most resemble our holiday sales patterns.”
“It’s difficult to estimate how much inventory we will need for the holiday season as every year those numbers go up, but when we use Prime Day sales figures and apply those numbers to our holiday season estimates, we are better prepared.”
Expect the Unexpected
There’s a fine art to inventory forecasting and it’s not an exact science, but having a good idea of your previous numbers and the current landscape for your products can help you make informed restocking decisions. If you’re selling several items, manually analyzing this information can take hours and multiple spreadsheets.
While Amazon has introduced some new inventory management features in Seller Central that can help tremendously, many sellers want a tool that can contain all of their information, from supplier data to cost information and beyond.
It’s important to understand when inventory is low, but determining whether or not an item is worth restocking means evaluating the margins and many other factors in addition to projected sales.
“When going into Q4, be prepared for the unexpected. While you should have clear forecasts that factor in previous demand, sales uplift and marketing initiatives, sometimes an item you may not have thought would perform well can turn into a top seller,” said Carina McLeod, former Amazonian and founder of eCommerce Nurse.
“These situations are difficult to forecast, but you can have a backup supply. If you are a vendor and Amazon does not order enough inventory and demand spikes, be ready to turn on Direct Fulfillment and ship products directly to the customer.”
“If you are a seller selling FBA and you did not send in enough inventory, be ready to switch over to Fulfilled by Manufacturer while you send in another shipment to avoid any missed sales. If you completely run out of stock on that item, look to redirect your focus to the most equivalent product.”
Watch your inventory closely and get comfortable with making decisions quickly to prevent going out of stock.
When it comes to planning for Q4, it’s never too early to start thinking about your approach. Put your process on paper so you can assess if there are opportunities to streamline or automate time consuming tasks.
As Liz Adamson, Founder & Lead Consultant at Egility, said, “The time to plan for Q4 is now. Reviewing last year and year to date sales data, forecasting inventory levels, and planning POs and shipments to make sure you are fully stocked for the holiday rush.”
“But it’s not just about inventory levels. You should also be auditing your product pages, making sure that they are in top shape and ready for the Q4 traffic. Make sure you are fully utilizing your copy, images and Enhanced Brand Content and have great content that will convert clicks to purchases.”
Putting It All Together
Inventory forecasting and taking a good look at current industry trends can help you get an idea for what to expect in Q4. Be sure to factor your advertising efforts into your overall inventory management plans to avoid going out of stock on popular items.
Finding the right balance for Q4 inventory can be challenging, but applying your knowledge as an Amazon seller to understanding demand, trends, and previous sales data can help you avoid overstocking or going out of stock. Good luck!