Any Amazon seller will tell you that inventory management may be the most crucial factor in running an Amazon FBA business that will make the difference between profits and potential losses.
Amazon Inventory Management can be a bit different than typical inventory management, especially when you’re selling FBA (Fulfillment by Amazon).
Why? Two main reasons:
- COVID restrictions Amazon initiated soon after the pandemic hit limit the amount of product you can send to warehouses at any given time (previously unlimited).
- Because of #1, you now have to constantly send your products to Amazon’s warehouses where they can then fulfill customer orders, adding another layer of complexity to your business
The combination of these two factors has made Amazon inventory management a difficult game of balance sellers have been playing for the past few years.
To help you understand inventory management on Amazon for 2022, this guide will help you learn all about the topic.
From fundamentals to tips you can use in your Amazon business to make sure you’re doing everything possible managing your inventory to keep profits high and losses at an absolute minimum.
To start, let’s break down what inventory management is:
What is Inventory Management?
According to IBM, inventory management is defined as “the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale.”
It’s a simple enough concept, but as your business grows, it can become much more difficult to track your inventory.
On top of that, managing inventory through Amazon isn’t exactly the same as traditional inventory management.
Regular Inventory Management vs Amazon Inventory Management
If you sell products on your own eCommerce store or on Amazon through FBM (Fulfilled by Merchant), you only have to concern yourself with having products available.
However, if you sell using Fulfillment by Amazon (FBA), you need to be aware if how much inventory you have at your warehouse as well as Amazon's.
This has the added requirement of having to send your inventory to specific Amazon warehouses while simultaneously being limited to the amount of product you can send at any given time (an amount Amazon dictates).
This makes staying in stock on Amazon a bit different than if you managed and shipped inventory yourself, but in exchange you get all the benefits of selling an Amazon Prime product.
A successful Amazon business is one that not only offers a great product at a reasonable price, but one that can stay in stock and is consistently available for customers to buy.
One of the worst things that can happen as an Amazon seller is going out of stock.
Let’s go over some of the negatives of going out of stock:
What happens when your product goes out of stock on Amazon
- Your product will disappear from search results
Even selling the #1 positioned product for your optimal keyword, if you go out of stock your product will likely disappear from search results completely.
Worse still, people that still manage to find your product page will get the dreaded “Currently unavailable” notification.
- You will immediately lose keyword rank and BSR
Amazon looks at a lot of different metrics to determine how products rank for keywords. One they look at very closely is your daily rate of sales. Usually products that sell more products in a 24 hour span rank higher than similar products that don’t sell as much.
When you go out of stock, your daily rate of sales drops to 0, giving your competitors the perfect opportunity to start outranking your product.
If you’re out of stock long enough, by the time your product is live again, you’ll likely be ranking worse than before you went out of stock.
On top of that, your product will also lose BSR (Best Sellers Ranking) which is a general ranking factor Amazon uses to help decide where products rank for keywords in their respective category.
- The sales you lose out on might never come back
Selling on Amazon is different from running your own eCommerce store. Amazon is concerned with giving customers the best experience, so they will always promote in-stock products over out-of-stock products.
There’s a good chance that your product has competitors that sell something similar enough, so someone who wants to buy your product may not always wait for you to come back in stock. If your branding is strong and you offer a very unique product, this might not be the case.
Ultimately, sales you lose while out of stock may never be recovered.
On the positive side, virtually every Amazon seller in existence these days is having trouble staying in stock 100% of the time. Do your best and remain positive!
If you do run out of stock (and there’s a good chance you will at least once), fear not, you will likely be able to recover rankings over time, especially if your product is truly great, when you are finally back in stock.
Overall, missed sales will hurt overall profits. You may also have to spend a bit more on PPC to recover your rankings as well, which will hurt profit margins.
This is why it’s essential to manage your inventory well.
With that in mind, let’s go over some tips for successful Amazon inventory management:
Top tips for managing your inventory on Amazon
- Send 30-60 days worth of product at a time
Amazon limits the amount of inventory you can send to an FBA warehouse at any given time. While no one knows the exact formula they use, it comes out to Amazon recommending you send roughly 30-60 days worth of sales for your products.
Sending this amount is recommended, as it helps keep your Amazon IPI (Inventory Performance Index) score high, which minimizes fees from Amazon and keeps you away from potential restrictions Amazon can place on your account if you’re not moving product fast enough.
- Keep seasonality in mind
The strongest selling season is usually Christmas time at the end of the year, and because of this Amazon charges more for holding inventory during the last quarter of each year.
Most estimators for sending stock (including Amazon’s) don't always give good estimates for how much product you should send if you’re entering your biggest season (or leaving it).
If you send too much, you'll get hit with higher storage fees. Send too little, and you'll risk going out of stock.
It's up to you as a seller to determine how much to send each time.
Sending an optimal amount of product will help with Amazon metrics and with margins.
- Order product from your supplier as early as possible
This one is tricky, but absolutely required in today’s climate. Due to the pandemic, lead times for getting products made has increased (and cost more), sea freight is more expensive and full of delays, shipping products to warehouses takes longer, getting products into FBA warehouses takes longer than before.
Everything simply takes more time and costs more at every step these days.
The longer it takes each step of restocking done, the more your chances of going out of stock increase.
As a result, sellers have to order restocks for their products earlier than ever before, but since everything is more expensive and takes longer than ever, they may not have the capital to reorder from their suppliers in time.
This is where funding companies for eCommerce sellers comes in. Companies like Onramp Funds (disclaimer: that’s us) can give your company the capital it needs to order products at the right time to make sure that you never go out of stock. The best part about us is the way we work. We don’t look at your credit score, we base funding off your account’s sales history, and you only repay as your products eventually sell to customers.
In a world where it’s nearly impossible for small businesses, especially online businesses, to fund their business through traditional methods like banks, these new funding solutions can really help sellers in a world where it’s become much more expensive to operate, but also don’t want to incur new large costs that hurt their margins.
- Slow the rate of sales for products that might go out of stock
This is a big one. As I mentioned earlier, when you go out of stock, a lot of bad things happen to your listing, your rankings, and your sales. Going from 100 sales a day to 0 sales a day hurts a lot, so one thing many sellers do to not go out of stock is to slow the rate of daily sales for their soon-to-be out of stock products.
How do you achieve this?
There are two main ways to slow the rate of sales for your product:
- Raise the price of your product.
- Slow down (or turn off) any PPC campaigns for your product that you have running.
When you raise your prices, it will likely lower your conversion rate, and this is good if you risk going out of stock.
On Amazon, going from 100 sales per day to 70 per day, to 50, and so on is much better than going from 100 one day then 0 the next.
Remember, when you have no stock on Amazon, your product will disappear from search results pages completely.
Toning down PPC ads will have a similar effect. Fewer people seeing your listing will help slow your rate of sales down.
These two actions could buy you enough time for your products to get back in stock at Amazon warehouses where you can then resume normal pricing and ads.
Be warned, however, if you raise your prices too fast and too high, there’s a chance Amazon will make you lose the buy box (making customers unable to purchase your product) because they believe you might be price gouging. This is a protective measure Amazon takes for its customers, and you shouldn’t have to worry about it if you aren’t raising prices too high when trying to slow down sales.
- Avoid long-term storage fees
This one falls in line with tip #1, but it is good to keep in mind. There are two times Amazon charges more than their usual storage fees: the last quarter of the year (due to the Holiday season), and if your products have been in an Amazon warehouse for more than 365 days, called Long Term Storage Fees.
Long term storage fees are completely avoidable, and there are many strategies to get rid of stock that is approaching 365 days.
With products that have been in a warehouse too long, you can create deals to sell them off, you can send them back to your warehouse so they’re out of Amazon’s, you can pay Amazon to destroy the products, or you can even liquidate your product and Amazon will auction it off for you.
- Utilize software to help manage inventory
A sort of "software" that will help you manage your inventory is Amazon's Restock Report.
This will tell you how many days each of your products have until they eventually go out of stock.
It looks like this:
This works fine for many sellers, and it's fairly accurate (but remember tip #2 on seasonality!).
As your business grows and the number of SKUs increase and if you decide to start selling on multiple marketplaces, it might be a good idea to invest in software that can alert you when products need to be sent to an Amazon warehouse (or other warehouses).
Some popular software solutions that include inventory management capabilities:
While many Amazon sellers will likely never grow their accounts to the point where they need dedicated software to keep track of inventory for them beyond Amazon's internal tools and a couple of spreadsheets, the option is always there.
With all the information in this guide, you should know all the best tactics to stay in stock on Amazon, how to keep the flow of inventory coming in, and what to do if your products are heading towards being out of stock.
Staying in stock is the biggest struggle today selling on Amazon. Until the sea freight situation and the entire supply chain return to a more normal state, the most successful Amazon businesses will be the ones that can stay in stock the most consistently.