5 Ways to Prevent Overselling and Improve Your Bottom Line

This post was written by Nick Maglosky, CEO of ecomdash. Ecomdash is a smart, multichannel inventory, order, listing and shipping software for online retailers. Nick is passionate about small to mid-sized businesses and all things ecommerce, and enjoys researching innovative ways retailers can compete online in an increasingly diverse market.

Inventory management is crucial for all ecommerce retailers. Unfortunately, many retailers aren’t doing it right. In fact, retailers lose over $1.75 trillion dollars a year due to poor inventory management, including overselling.

Inventory Management Strategies to Avoid Overselling

The best way to effectively manage inventory will be unique to your business. What works for you may not work for other ecommerce companies. But, there are some strategies that are beneficial for all retailers – those that help improve your inventory management and increase cash flow.

Here are five ways to prevent overselling in your ecommerce business and to keep yourself out of those staggering statistics.

#1 Set Standard Levels 

The standard level for a product is the minimum quantity of product that you must have on hand at all times to take care of orders. When stock goes below the standard level, it’s time to order more inventory.

When you place an order for additional inventory, you’ll want to order the minimum amount to put the product above the standard level. When you are calculating the standard level for a product, be sure to keep in mind how quickly the item sells and how long it takes to receive inventory from your suppliers.

Although it will take some work on the front end to set all your standard levels, it will save a lot of time and will help prevent stock outs – and dissatisfied customers.

Check your standard levels quarterly, as things are ever-changing in the world of ecommerce. The products that are your best-sellers now may not be in a few months.

#2 Use the FIFO Method

“First-in, first out” is a simple concept. Your oldest inventory (first-in) gets sold first (first-out), not your newer stock. This concept is crucial if you sell anything that is perishable, so you don’t end up with expired or unsellable items.

It’s also important to use the FIFO method with non-perishable inventory. If the same products, boxes, and packaging are sitting on the shelves for a long time, they will get worn and not look fresh. Additionally, suppliers may change product packaging over time and you don’t want to end up with stock that is obsolete that you can’t sell.

If you use a fulfillment company, it’s likely they already practice FIFO, but it’s worth checking with them to confirm.

#3 Have Back-up Plans

Planning for contingencies can save you a lot of time and headaches. Issues with inventory management can pop up when you least expect them, and when they do, they can devastate your business if you are not prepared.

Some of the more common inventory management issues are:

• An unexpected sales spike that causes you to oversell products
• A cash flow issue that prevents you from ordering much needed stock
• Your warehouse runs out of room and can’t store any more products
• Slow-moving products are keeping your shelves full and there isn’t room for more inventory
• Inventory miscalculations that cause you to have more or less stock than you thought
• Your supplier runs out of products and you have orders to fill
• Your supplier discontinues products without notice

It’s really not a matter of if these scenarios occur; it’s a matter of when. Consider the issues that could come up, and plan for how to handle them. When you have a plan, you can make a potential disaster no more than a little hiccup that is easily managed.

#4 Audit Regularly 

Regular reconciliation of your inventory is important. You’ll likely use software and reports from your warehouse to know accurate inventory levels. But, it’s still important to make sure your reported numbers match the actual quantities of stock. There are several ways to do this.

• Physical Inventory – This involves counting all inventory at once. Many businesses only do this type of audit annually, but that can make it hard to reconcile any discrepancies.
• Spot Checking – Spot checking will help you stay on top of discrepancies. It involves doing a check on specific products throughout the year. It’s not typically done on a schedule and it should be used along with an annual physical inventory.
• Cycle Counting – Rather than doing an annual inventory, certain products are inventoried on a schedule throughout the year, so that all items are inventoried within a 12-month period.

#5 Accurately Predict Demand 

A big part of inventory management is being able to accurately forecast demand. This isn’t an easy task. There are a lot of variables involved and unpredictable issues that come up, but you should be in the ballpark when you look at the following factors:

• Market trends
• Prior year’s sales during the same period
• Growth rate of your business this year
• Overall condition of the economy
• Guaranteed sales from subscriptions
• Promotions that you have pending

Consider other things that may affect sales so you can come up with an accurate forecast of future sales.

Take Control of Your Inventory Management

When you take control of inventory management, you’ll know exactly how much inventory you have, accurately forecast, and prevent overselling. Not only will this ensure that you don’t lose any sales, but it will also help increase your bottom line.

Shippo is a multi-carrier API and web app that helps retailers, marketplaces and platforms connect to a global network of carriers. Businesses use Shippo to get real-time rates, print labels, automate international paperwork, track packages and facilitate returns. Shippo provides the tools to help businesses succeed through shipping.