With FBA fees increasing throughout 2023, effective Amazon inventory management is vital to protecting your profits. While little oversights and inaccuracies may seem harmless, they add up and compound over time.
So how can you keep these mess-ups to a minimum? You can start by avoiding these five overstock and stockout mistakes FBA sellers always make, and following our strategy about how you can fix your inventory right now.
One of the biggest ways you can create problems for yourself with FBA inventory is by overstocking it. This usually means you’re not selling as quickly as you should be. Also, if you’re overstocking low-priority inventory, it means less room for high-priority products and top-selling items.
Additionally, the more unsold Amazon inventory you keep at your FBA warehouse, the more you pay in the various types of monthly Amazon storage fees, many of which are seeing significant hikes this year. But that’s not the only cost you’ll incur.
Inefficiency costs businesses up to 30% of their revenue yearly, according to market research firm IDC.
“In inventory management, inefficiency occurs when there’s no system in place to help you streamline your data. This increases your risk of overstocks, stockouts, inventory discrepancies, ordering too late, and transferring too late, among other inventory management pains,” says Chelsea Cohen, CEO and Co-Founder of SoStocked.
What further costs might this mistake bring your way? As mentioned, Amazon uses multiple metrics to rate how efficiently you manage your FBA inventory. One of these is the Inventory Performance Index (IPI). This ranking is determined by the percentage of excess inventory and your sell-through rate, or how quickly you convert inventory into cash.
Other data points considered in your inventory performance are the percentage of inventory not available for purchase and your in-stock rate over a 30-day period; not to mention your sell-through rate, which is calculated by dividing units sold over 90 days by the average units in storage. These are all important in determining your inventory score.
All of that said, there are many ways to prevent overstocking and maintain a strong overall ranking with Amazon inventory. Here are just a few every seller should try:
Just as overstocking can cause chaos with your Amazon inventory, understocking can be equally destructive. But what is an inventory “stockout,” and why are they so dangerous?
A stockout means your business will receive no more revenue until your inventory is fulfilled. We won’t say it’s a cause for panic…but it’s definitely not a great outcome. Understocking also leads to out-of-stock items, which quickly turns into lost sales and even worse, customer dissatisfaction.
This FBA inventory mistake also causes customers to switch to competitors, potentially forever. And that is just as scary as it sounds. Amazon may also stop listing your product and lower your ranking. Why? The availability of products is a key factor in search ranking, whether you have fully optimized listings or not.
Amazon’s ranking is based on the likelihood of someone purchasing your product -- but why show it if it can’t be purchased? There are even more pitfalls with understocking, such as a slide in sales (now and in the future), and a lower ranking. Unfortunately, the longer you’re out of stock, the more significant the drop in rankings.
So, how can you make sure to prevent understocking with Amazon inventory management?
If you’re wondering, you can bypass these mistakes altogether by checking out SoStocked for advanced inventory forecasting capabilities. Using SoStocked, you can avoid excess inventory, minimize costs, and increase profits.
If you’re not managing your stock levels for seasonality, it can become your next big headache. Amazon FBA sellers must be able to anticipate stockouts so that shopping seasons and special holidays don’t take them by surprise.
Seasonality has a massive impact on stock levels, which is why it’s so important to keep a close eye on them. Increased demand during holiday shopping seasons affects Amazon inventory in a few ways.
For one, if you’re late in stocking up for a big shopping event, you run the risk of overstocking just in time for the slow season. Having low FBA inventory when you typically see an increase in sales means missed opportunities in the form of lost revenue and loss of potential repeat customers.
How can you get ahead and stock up in time so you can get rid of that inventory while there’s a demand for it? Here are a few ideas:
That last tip is essential. If you overestimate demand forecasts, you get excess inventory and pay more to store it than it’s worth. Underestimate it and you run short, giving your competition the lead. This is why monitoring the supply and demand of your inventory is key.
Implement a tool like SoStocked that monitors past sales, Prime Day, seasonality, sales spikes, and forecasts inventory needs for the future so you can prepare. Pay attention to the back-to-school period, Fall, Prime Day, Halloween, Thanksgiving, Black Friday, Small Business Saturday, Cyber Monday, Winter trends, Christmas, New Year, Valentine’s Day, Easter, Memorial Day, and Summer trends.
Not managing stock levels for product trends can cause a mess for FBA sellers. Trends can go as quickly as they come, so it’s important to stay on top of opportunities and stock your Amazon inventory accordingly.
For instance, competitor product trending could mean more sales for your similar product. Say your product is trending and inventory levels are low. This is a situation where your competitors could easily steal your customers.
Product trends can impact stock levels when consumer preferences are quickly changing for certain products. That’s why it’s a good idea to pay attention to things that can affect trends, like viral influencer videos, product recalls, new products to market, product reviews and competitor reviews, and counterfeit product launches. All of these can impact customer perceptions, and they drive sales in favor of certain products and brands. Not knowing what’s coming can put you in a tough spot with your inventory.
There are a few helpful ways to manage Amazon inventory stock levels for product trends, such as keeping up to date with market research, following trend changes via best sellers and "most wished for" items, and keeping a watch on competitor inventory and pricing.
You can also commit to one of the following strategies around trending products:
Not using automation tools is another big mistake for Amazon order management. Manual inventory management, multiple marketplaces, and setting alerts/limits can all be quite time-consuming, complicated, and frankly, subject to human error.
You also have to manage vendors/orders, track orders, and create purchase orders. All these tasks can become overwhelming and stressful without automation tools. What’s more, it can become difficult to stay organized.
Forecasting sales and trends is incredibly difficult without close monitoring and tracking, especially when there are multiple systems and data methods involved. Having automation tools at your disposal can be a tremendous help with FBA inventory management, especially with automating reordering processes and providing real-time stock-level updates.
With automation tools, all data, limits, alerts, forecasts, and vendor management is under one roof. No more juggling spreadsheets, repeating tedious tasks, and fixing mistakes for multiple marketplaces. The key is incorporating automation tools into your Amazon inventory management by researching available options and choosing a tool that best fits the needs of your business.
Inventory management has always been a pillar of maintaining profitability as an FBA seller; the fee hikes of 2023 – which you can read about in the free Carbon6 white paper, “Attack of the Fee Stack” – only make that truth all the more pressing and inventory even more important.
If you need a tool to help manage your inventory for Amazon, try SoStocked and find out why over 1,000 Amazon sellers, agencies, and aggregators use it to maximize profits and manage inventory like a pro.