Having better control of your inventory and more flexible operational processes helps brands achieve the following:
- Improve Net Promoter Scores (NPS): When you impress customers with your post-purchase experience, they can help combat rising customer acquisition costs (CAC)
- Increase sales volume: When inventory numbers are up-to-date, you can confidently allocate your inventory, making the idea of multi-channel selling less daunting
- Boost profit margins: Better data means better decision making, which makes it easier for brands to identify cost savings and keep more of every dollar spent
Maintaining accurate and up-to-date inventory records provides a fourth benefit: Optimizing your stock and cash flow.
Profit margins (expressed as a percentage) are what is left after subtracting your brand’s expenses from your brand’s income, so the higher the better—unfortunately, profit margins have always been low for ecommerce brands. Meanwhile, cash flow is simply the net amount of cash moving in and out of a business; this is typically measured month-to-month.
Considering that cash flow is the money you have available to cover current expenses to keep the business running, improving cash flow is just as important as improving profit margins. In fact, 32% of ecommerce businesses reported “running out of cash” as the reason they failed.
Tips for Keeping Cash Flow Positive
Implementing these strategies will help improve your bottom line and ensure that your business is running smoothly. Spoiler alert: It all relies on having visibility and control into your inventory and order data.
Maintain Real-Time Inventory Adjustments
The inventory counts in your records and the actual amount of inventory sitting on your warehouse’s shelves don’t always add up. Inventory adjustments bring stock records into agreement with the physical inventory, with adjustments being made to account for exceptions like theft, damaged goods, or errors in the amount of items received. Unfortunately, reconciling inventory is time-consuming when 1) inventory tracking is done manually and 2) your brand doesn’t have access to the data in your fulfillment partner’s warehouse management system (WMS).
Let’s say you’re a homegoods brand that has 50 red serving platters left at the warehouse. Unbeknownst to your ecommerce team, 10 red serving platters were broken in-transit during yesterday’s delivery. Only 40 should be made available to purchase on your website, but since your brand is unaware of this accident—the inventory has yet to be adjusted from 50 to 40—you are now at the risk of overselling 10 red serving platters. That’s 10 canceled orders to 10 disgruntled customers… which your finance team may not even know about until after all 50 are sold, with the ledger erroneously accounting for 10 orders that were “filled” despite actually being unfilled. Not having an accurate understanding of your cash flow could result in poor decision-making.
Speaking of poor decision-making…
Understand Your Sell-Through Rates
Why do some brands overstock on slow-moving items? They don’t know those items haven’t been selling. Why do other brands seemingly always have their most popular items go out of stock? They don’t know which items have been selling the most frequently.
They don’t know their sell-through rates (STR).
An STR percentage is the amount of inventory sold within a time period relative to the amount of inventory received from your manufacturer(s). If you know your STR across all your product variations, you could manage your cash flow in the following ways:
- Discern the popular products from the unpopular ones so you can stop tying your funds up in unmovable inventory
- Mitigate storage costs by keeping shelves clear and making sure inventory isn’t sitting idly at the warehouse
Speaking of sitting idly…
Speed Up Inventory Turnover
When returned merchandise is sitting idly at your warehouse, you lose revenue and a potential new customer. Wait too long, and that item is out-of-season or needs to be heavily discounted because it’s been wasting shelf space needed for more-important items. The sooner your brand knows that a returned item is back on your warehouse’s shelf, the sooner you can put that item back up for sale on your website.
It’s not just the inventory turnover of returned items that can be sped up. You can increase the sales velocity of featured products (e.g., a fan-favorite item debuting in a new color) as well. When you know exactly when something is stocked and how much you have left to sell—especially since your inventory adjustments are all accounted for—your marketing team can confidently push products or even pre-sell highly anticipated items.
