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It’s easy to forget, with all the focus on PPC bids, buybox, and A9 rankings, that there is a physical side to any business that trades in physical goods. To get products to your customers, you need to store them somewhere, but how do you know how much to have at any given time?
Having effective inventory forecasting is crucial to having a successful business - you don’t want to have too much or too little, because either can have consequences.
Beyond just leaving money on the table from sales you could have made if you had available stock, having too little inventory can turn customers off and bump you down the A9 ranking. Having too much, on the other hand, can drain money that you could have spent elsewhere and result in excess storage that can get you slapped with long-term storage fees, bringing down your Inventory Performance Index in the process.
Put simply, getting your inventory wrong can make it harder for customers to find you in search, and can limit how much you can ultimately store at Amazon warehouses, both of which will have a detrimental effect on your sales.
So how can you accurately and reliably predict how much stock you will need to never run out?
Forecasting can be accurate, but it will never be a perfectly exact science. You will need to forecast for multiple things, including both demand and sales. In a perfect world, demand forecasting and sales forecasting would be the exact same, but it doesn’t quite work like that.
In simple terms, demand forecasting tries to determine the level of customer demand there may be, while sales forecasting tries to determine how much of that demand you could convert into sales. Ideally, you would want to focus on the gap between the two and figure out a way to close it.
To see how much you will need in the future, you will naturally need to take a look at how you’ve been doing in the past. Amazon has a number of useful tools available for this - whether you are a seller or a vendor, you will have access to "Business Reports" that will detail the sales, sell-through rates, and inventory performance of products in the past.
This will help you look at yearly, monthly, and even weekly sales trends, allowing you to establish baselines, on top of which it will also let you gain insight into seasonal trends depending on what time of year it is. For this reason, you will want to have both a seasonally adjusted sales forecast - typically based on current sales volumes and seasonal trends - as well as a moving average.
It will also help you understand what type of demand your product has. Fast-moving consumer goods like washing liquid or regular consumer goods like books and video games are likely to have a steady demand year-round. Something like a winter coat, on the other hand, will for obvious reasons display more of a seasonal cycle even in geographies where it may be cold year-round.
In addition to looking at past performance, you will also need to look at where things are going. Keep an eye out for any trends that may have an effect on your sales. You may start to notice these in your sales figures - maybe numbers on certain items are trending up or down in a way that reflects some sort of consumer sentiment or performance within your own business - it could include seasonality, competition, customer demand, advertising and other factors, which can present an opportunity if you are able to identify it in time.
Fortunately, while trends come and go, most of them stay at least long enough for you to be able to make some money from them if you catch on quickly enough. Beware though of seeing everything as an opportunity - sometimes trends in your sales are just random.
Keeping in regular contact with your suppliers is crucial to keeping up a healthy level of inventory. You want to make sure that they are not having any issues with production or with personnel that could affect your stock in the coming few months - you want to do it with enough time so that if any issues do arise you can get ahead of them with alternative options.
Remember that there is, obviously, a feedback loop between your promotions and advertising and your inventory. If for whatever reason you are finding yourself running low on stock, adjust your marketing accordingly. Temporarily missing out on additional promotional sales is still better than not being able to deliver if people want to buy from you.
You can do all this yourself, but there is also inventory optimization software available on the market to help manage your inventory and automate the forecasting for you.
Threecolts is a comprehensive suite of advanced ecommerce software solutions. We're designed to empower retail vendors and marketplace sellers on Amazon, Walmart, and beyond. Our tools optimize every aspect of ecommerce operations to ensure maximum profitability.
For sellers aiming to earn through reselling, Tactical Arbitrage helps you find hidden deals 5X faster. ScoutIQ provides instant insights for scoring in stores. DataSpark helps you get your next bestseller on Walmart Marketplace across over 14 million products in its database.
If you want to sell globally without storing, shipping, or risking money on inventory, SellerRunning simplifies cross-border dropshipping. We let you manage and expand your ecommerce business across multiple Amazon marketplaces seamlessly.
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Simplify Amazon operations with InventoryLab. It's an all-in-one solution that enhances everything from sourcing to logistics to accounting. We make inventory management and business workflows as streamlined as possible, so you won’t have to think about it.
Protect your profits with our advanced recovery solutions. DimeTyd Amazon helps 1P vendors recover lost revenues from overbilling and inventory discrepancies. DimeTyd Walmart simplifies the process of disputing unacknowledged shipments and organizing deductions. DimeTyd Sellers offers comprehensive monitoring and dispute resolution for Amazon FBA.
Automate your pricing strategies with SmartRepricer. We'll help you stay competitive by adjusting prices automatically based on custom rules. You can make sure that you always win the Buy Box with just a few clicks.
Finally, safeguard your online reputation with our reviews and alerts solutions. FeedbackWhiz Emails lets you handle Amazon review requests with personalized feedback campaigns. CR Feedback offers cost-effective feedback gathering for eBay and Amazon review requests. FeedbackWhiz Alerts keeps you informed with timely notifications on reviews, threats to your listings, and other important events.
