Running out of inventory on Amazon means losing sales, losing Amazon search ranking and losing against the competition. To prevent this, you need a strategy to ensure that you never run out of stock regardless of the circumstances.
Running Out of Inventory on Amazon
Amazon doesn’t want any seller to run out of inventory because they make more money the more sellers sell. And you sell more when you please customers and always have the items they want.
Lost Rank, Sales, Trust and Competitive Edge
Amazon rewards hot selling products and stellar customer service. But you will lose the privilege of having listings rank on the marketplace – no matter how you’ve optimized them – when customers are upset because you are out of stock. Your customers will also lose trust in your brand and may switch loyalties.
Your seller performance rank will drop fast, too – because not only are you not selling, i.e. you have no sales velocity, but your competition is selling instead of you – and you’ll have to work hard to get it back, all because inventory slipped your mind.
Maintaining Inventory on Amazon
Making sure you always have enough inventory on Amazon may be a tedious task, but it is well worth it compared to the consequences.
Just remember that it’s not just about keeping a whole bunch of stock all the time. There are also consequences to overstocking. For one thing, it’s money that you can’t touch. In addition, you will pay higher storage fees and product runs a greater risk of being damaged the longer it’s stocked.
And know that although marketing is more fun, you’ll be wasting money – from paying for quality images to optimize your listings all the way to your daily PPC budgets and every single click – if you aren’t focused on inventory management
They keys are regular monitoring and accurate forecasting.
Let’s break it down into specific areas:
This is always the best place to begin. You won’t be able to do the other tasks properly if this isn’t sorted out. Reach out to your suppliers – and yes, that’s plural. You don’t want to run into issues because you have only one supplier.
1. Ask your suppliers about lead times.
This is how long it takes them to have product ready for shipping from the date you send them a purchase order. Find out as well if this depends on the quantity you’re ordering.
2. Make sure you know what their busy times are.
They might not be the same as retail peak seasons. Find out about what holidays they take and if they have any blackout periods, too, like when they do inventory management or people are on leave, slowing things down.
3. Ask them about what quantity per month they can guarantee.
This is so you have an idea of how many backup suppliers you need, or whether its worth it to work more on marketing to get volume discounts and make it the spend through sales.
4. If you’re doing FBM, ask them about shipping times.
Then calculate these numbers over the past several shipments, then monitor that number moving forward. You want to know the average shipping time and the margin of error you can tolerate to avoid running out of inventory.
If you’re doing FBM, look at your past shipments going as far back as one year if you can, and average them out.
Don’t forget about shipping delays during peak times like around the Christmas holidays.
The goal here is to be able to manage their production versus your sales cycles.
5. You need to know how many units you sell per month each month over at least 12 months.
Make sure you take into account any days you were out of stock. Then you need to calculate supplier lead times against what your busy times are so you know around how much inventory you need to make sure you don’t run out. Then communicate that with your suppliers so they can always be ready for your orders.
6. Calculate your reorder point.
Figure out how many units you need to have in stock to cover supplier lead times – remember that this includes how long it takes you to actually send them the PO, plus your margin of error for delayed production and shipping due to holidays, etc. Then you will know when it’s time to order just by looking at your Restock Report in Seller Central. You can also use the Amazon Selling Coach report.
7. Always have a buffer level of stock on hand.
This is over and above your lead time and shipping time margins, and applies whether it’s in your own or Amazon’s warehouses. You should be able to calculate what this is for you specifically based on all the factors, but a good average to start with is about half of the lead time. Add that on top of the calculated number of units when you place an order.
In Case You Run out of Inventory Anyway
From time to time, even if you’ve covered all your bases by following the steps above, you will find yourself running out of stock. It can send a chill down your spine to go to your reports and find that you simply don’t have enough inventory in stock to cover lead times.
Don’t worry, there’s a solution to this, too. It’s not something you should do unless you absolutely have to, however.
Slow Down Sales
Wanting to sell less is obviously a crazy idea. But it can work to maintain your performance level and rankings in a pinch. It’s definitely better than running out of inventory.
1. Pause any advertising campaigns that you have running.
Until you can get more stock in, you need to stop advertising. Amazon PPC is the most important, but any other ads that point to that Amazon listing or a website that fulfills via Amazon may need to be paused as well if they are bringing in lots of sales. This reduces visibility and traffic to your listing so less people will be likely to buy up all your stock.
2. Raise the item’s price.
Do this only if pausing all ads doesn’t work within a few days. You want to go to a level beyond what you feel is your customers’ tolerance level – usually a degree higher than the competition. This will discourage them from buying from you in the meantime. You don’t really want to do this before pausing PPC, however, because you don’t want to turn your customers off and have them going to the competition.
3. Readjust for new reorder points and buffer stock.
You need to recalculate, taking into account whatever situation almost caused you to run out of inventory!
Recovering Rankings after a Stockout
If you still find yourself out of stock one day, you may need a few tips to get your rankings back.
1. Run promos and giveaways to recover ranking.
his can cost a bunch, but will get you back to where you were fast. This only works, however, if you have enough cash flow to cover not only lost revenue during the stockout but to pay for all the ads and free items.
2. Run additional Sponsored Products ads.
Amazon PPC is known to boost organic rankings on top of increasing visibility by putting your listings in prime spots.
It must be said that the best way to maintain your seller performance rank and your listings’ organic rankings is to take all precautions to never run out of stock in the first place. It’s really not impossible at all – lots of sellers manage to maintain optimal inventory levels. You just need to take the time to make all the correct calculations, monitor for changes and update your numbers as you get more data and as other factors come into play.