Managing your inventory effectively with Amazon is crucial to make sure that Prime buyers are finding your products. For many companies, Amazon makes up a large percentage of their total eCommerce sales.
In this article, we’re going to share some tips to help you maximize your profits and avoid common missteps when it comes to managing your inventory and utilizing the Amazon FBA program.
Regardless of what stage your company is at, these guidelines will help you be more efficient and capitalize on your time and investment.
Maximize your inventory with Amazon
You want to make sure that you’re managing your inventory with Amazon carefully to avoid two main pitfalls when it comes to Q4.
One potential pitfall is the incurring high storage fee costs, and two is not having enough inventory available due to mis-estimation of receiving times on Amazon. There is always a tension for sellers around precisely how much stock to send in.
During Q4, your inventory management is critical. Knowing how much inventory to send in and how much to keep in stock is more important than ever.
Reports and client data suggest that low stock levels seem to be affecting buy box percentage, which in turn affects your ability to promote your items via Amazon sponsored product advertising.
Plan for increased storage fees
Storage fees from October to December increase dramatically.
The price per cubic foot of storage on Amazon shoots from 69 cents per cubic foot per month to $2.40 per cubic foot for standard items during Q4.
This is something to take into consideration especially on products that are packaged for higher perceived value and/or oversized items. These higher storage fees can sometimes wipe out all of the potential profit on a particular product.
While you won’t be able to eliminate paying those higher storage fees, there are ways to reduce the storage fees you will be paying for your Amazon inventory.
Expert tip –>
As you’re determining which products you want to send into Amazon for Q4, incorporate the augmented storage fees into your cost structure for bulk items. Assume you’re paying for at least two months of storage at this higher price.
If items are not profitable when you consider those storage fees, you can consider raising the price slightly above MSRP, send in smaller quantities of the item restocking more often, or not carry that product on Amazon.
Amazon inventory pricing is affected by supply
Keep in mind that Amazon is a supply and demand-driven marketplace.
When the demand outpaces the supply for your product, you can expect your product to rise in price. This can allow your item to be sold significantly above MSRP.
If there is sufficient demand, an increase above the MRSP by less than 10% does not adversely affect the sell-through rate.
Conversely, when you have excess supply, the price of your Amazon inventory can often fall.
Many times this is the case of too many sellers on Amazon. It’s essential to maintain control of the distribution of your products to Amazon in order to maintain healthy stock levels.
Expert tip –>
Limit the number of third-party sellers and make sure you have clear terms regarding Amazon in your reseller agreements.
Utilize reports for inventory with Amazon
Another approach to reducing storage costs is to apply Just in Time Management Theory to your shipping process.
To receive items from your suppliers on time, you’ll need to purchase the bulk of inventory before it needs to be on Amazon. Utilizing JIT shipping will cut down on the time your items remain in Amazon storage.
Amazon provides tools to help sellers forecast sales throughout the year. Use the Inventory Health Report (IHR) to see how many weeks of coverage you have available on Amazon. This report will show you the number of units you sold in the last seven days, 30 days, and the entire year.
Based on recent sale periods, your inventory on hand will determine how many weeks of coverage they estimate you have right now.
However, it’s essential to know these forecasts don’t include any bumps for seasonality. As you’re looking to stock Amazon inventory for Q4 – or if you sell seasonal items at another time- you need to add in that seasonal increase to your inventory estimates manually.
Expert tip –>
Look at the sales multipliers from previous years during Q4. If you notice that during Q4 your overall sales revenue increased four times the last two-three years during the holiday season, you would be able to take whatever sales velocity you have right now, multiply that by four, and adjust your inventory accordingly from Black Friday through Christmas.
As you look to manage your stock levels for Q4, it’s also essential to keep an eye on items just starting to trend.
If your brick-and-mortar stores have trouble keeping stock on specific products in Q3, it’s likely those items will continue to trend into Q4. This can affect stock levels.
Amazon new ASIN promotion
Manage the cost of storage fees using Amazon’s promotion centered around shipping.
To encourage sellers to stay in stock, Amazon is offering to wave storage fees on new ASINS. Amazon will wave storage fees for the first 100 new Amazon ASINS that are created. If you must call them back, you don’t have to pay the removal fee.
One thing to note: this is only for the first 50 units that are received and only for the first 100 new SKUs that you create on that account.
Expert tip –>
This program has particular qualifications, so make sure your new product lines are eligible. To learn the details and find out if you qualify, visit monthly storage and removal fee promotion for new ASINs.
Keep ideal stock levels
Going out of stock in any sales channel during Q4 is not ideal and can have significant cash flow ramifications.
On Amazon, it’s even more critical. So much so that in some instances it’s better to keep some stock rather than to just maximize the number of units sold.
While it can be tempting to set conservative figures and risk running out of stock, this can have potential long-term consequences on Amazon in comparison to other platforms. Stock-outs of a product will affect the organic ranking for your products.
Expert tip –>
You might want to consider having a merchant fulfilled offer as a backup in case you do run out of stock during the holiday season.
If you’re the only seller of a particular item and it goes out of stock, it can cause enduring side effects on your keyword ranking for your products. When your product is not available, other products are still getting sales based on those keywords. Amazon interprets this as that product becoming a better fit for that keyword search.
Delayed receiving times
As warehouses get busier during Q4, you can expect that receiving times will increase.
You might see an increase in wait time from the standard one-two weeks, up to two and four weeks. If you’re using LTL shipment, receiving times can last up to six weeks. If you’ve been using LTL or FTL shipments to send your items into Amazon, another option is moving to a small parcel shipment.
You can also examine the possibility of enrolling in the FBA premium placement program. This plan allows sellers to send their inventory to one sort and one non-sort fulfillment center (FC). Keep in mind there are additional fees attached to the program.
Expert tip –>
As we get closer to the holidays, it’s essential to build additional lead time into your shipments. Not only because of the delayed receiving time, but because Amazon has multiple types of warehouses. Not all warehouses ship items directly to the customer.
Some warehouses receive the inventory and can send it right back to customers. There are other warehouses that are distribution centers. It’s a possibility your shipment will be sent to a distribution center, especially if you’re sending in large quantities. Amazon’s algorithm determines which locations need to have that inventory in stock so as many customers as possible can be eligible for one day delivery.
This redistribution of your items can sometimes make your inventory unavailable for one-two additional weeks.
Overall, Amazon is almost unmatched in their ability to sell a high volume of goods during Q4. They have the foundation and flexibility to scale up fulfillment and shipping for even small companies to reach a broader audience.
Don’t shy away from taking advantage of this fantastic tool to increase your bottom line, but remember to take all variables into account. By following these simple yet powerful tips, you can streamline and optimize your shipping process and inventory with Amazon.