Updated November 30, 2017
When using FBA, your inventory is literally out of your hands. You’ve shipped it to Amazon and are now awaiting high profit margins. But even when inventory is out of sight, it should never be out of mind.
Successful inventory management for Amazon FBA requires a focus on a variety of moving parts: price, sales rank, sales volume, fees…
To make sure that you don’t lose focus, here are six strategies for FBA inventory management that can have a very large impact on your business.
Invest in products with excellent sales ranks
It’s impossible to discuss managing inventory without addressing how products made it to your inventory in the first place. How did you conduct your product research? Did you assign enough importance to sales rank?
When researching products to source, most sellers consider sales rank. (The fact is that something with a poor sales ranking—in multiple digits—won’t move quickly enough). But most sellers don’t take ranking seriously enough and end up with risky inventory investments.
Some sellers purposefully avoid any product that ranks worse than 10,000 in a top level category (not sub category) because that number represents the inventory that never or rarely sells on Amazon. While there are almost a quarter of a million products listed on Amazon, only a percentage of them actually sell.
Also, rankings in the high digits are more volatile, meaning they fluctuate much more often. A ranking in single or double digits doesn’t move nearly as much, giving you confidence that once you ship something to FBA, it will actually sell.
So, going forward make it a rule to be more conservative in what you invest in, and make sure that sales rank plays a very large part in the decision making.
Be ready to source additional units of successful products
Starting small is a well-known business strategy that applies well to FBA selling. Walking before you run is how you mitigate risk. That’s why many sellers choose to ship small quantities to FBA and to receive and sell test orders before going big and buying mass amounts of inventory.
There’s never a guarantee that a product will be profitable, or even break even, so it’s wise to only send products to FBA whose investment you can afford to lose. Why not take advantage of the fact that there are no FBA minimums?
But, on the flip side, you must be ready to pounce when you’ve identified a winning product. First, you need to ensure that you’ll have the cash flow available to source the right products at the right time. Second, you need to make sure that you have enough time to ship a hot-selling item to FBA.
Here are factors to consider:
- Time to submit orders
- Time for supplier processing and fulfillment
- Time to deliver to Amazon
Calculate all of these and find out how many days it takes you to get from identifying a successful product to having enough in stock, and make sure that you are filling your inventory accordingly.
Get rid of low-performing inventory
How can you guarantee that you’ll have the cash flow needed to seize on opportunities?
By not getting bogged down by stagnant inventory that’s doing nothing but racking up FBA fees. Removing inventory from FBA is a hard call to make, and one that’s painful every time. But experienced sellers have all had to accept defeat at some point. Again, it’s impossible to guarantee profitability every time.
Rather than continue to lose money by storing products that don’t sell, remove them and attempt to sell them in another channel.
Not only will this free up cash flow that you can divert into other SKUs but it will also make your business immediately more profitable. Seeing that effect in real time will encourage you to make routine removal orders part of your FBA inventory management strategy.
It’s essential not to worry about increases in longterm storage fees and instead see these fees as an extra reason to liquidate what isn’t working.
Make sure that every item is accounted for
Inventory management isn’t just about strategizing, it’s also about auditing. This doesn’t sound nearly as glamorous, but it can save you a huge amount of money in the long run. With FBA, here are some of the things you need to watch out for:
- A customer has received a refund but never returned the product
- An item was marked as returned but credited to another seller’s account
- A reimbursement was issued to your account by Amazon but was never received
- A customer paid for one item, but received a duplicate
We remove the grunt work from inventory management by routinely auditing your account and filing claims for any issues. Maintaining a healthy inventory at the item-by-item level is absolutely necessary for ensuring profitability. Learn more here.
Watch out for lost or destroyed inventory
We’re strong believers in paying what you owe—and no more than that. That’s why our FBA reimbursement solution doesn’t only cover issues with customer returns. We monitor other types of FBA fee mistakes and inventory issues as well.
Products can be lost or damaged on their way to Amazon, while in Amazon’s warehouses, or while on their way to the customer. Also, Amazon sometimes purposefully destroys merchandise without your permission.
It’s essential to be your own watchdog for lost and destroyed FBA inventory. While Amazon has (mostly) helpful policies in place, the astronomical amount of sales makes it impossible to get all the fees and reimbursements right 100% of the time. We help sellers by identifying these errors and getting reimbursements on their behalf.
Develop and maintain a pricing strategy
Price is one of the few factors (or possibly the only factor) that FBA sellers are able to control. Successfully managing and moving your inventory means developing a pricing strategy based on your product acquisition cost, your FBA fees, your competitors, and key customer metrics.
To work, pricing strategies must operate on a SKU by SKU basis. Now is not the time to think of your business as a whole. Instead, the right pricing strategy will vary product by product.
While repricing software can take some of the headache out of this task (especially considering that Amazon reprices their own merchandise every 30 to 60 minutes), it’s only as effective as your data. So run your own calculations of indirect costs to establish a true baseline before enlisting any software.
Inventory management for Amazon FBA is just as important as sourcing and product research. When you ship inventory to Amazon, the work isn’t done. In fact, inventory management has the potential to teach you more about FBA than any other aspect of running your business.
What are your strategies for inventory management? Let us know in the comments below.