Your inventory turnover is another lever you can pull in order to improve cash flow. Easier said than done? Of course. So instead of making excuses about how hard it is, let’s look at how to get it done! Let’s improve inventory turnover so we can improve cash flow.
The very first thing you will want to do is count your inventory. I am often shocked at how many eCommerce companies I start with, and when I ask them when was the last time they took inventory I get that deer in the headlights look.
Counting Your Inventory
You can’t improve inventory turnover if you don’t know what you’ve got. There are other reasons for taking or counting your inventory. Counting your inventory gives you an opportunity to see what may not be salable anymore. Or if something is getting too that point.
Once you get a count, you give it to someone like me to post the inventory adjustment in QuickBooks Online. Now we have accurate inventory and Cost of Goods Sold numbers to work with. This is important.
Blow out old unsalable items
Want to bring in some cash quickly? Improve inventory turnover right away? Take all of your older inventory that isn’t selling off the shelf. Put in on a clearance shelf. Analyze that stock and figure out what your raw cost is. Just what you paid for it. No point in worrying about logistics or any other tangent costs.
Blow that inventory out. Even if it means taking a loss. You likely paid for that inventory a long time ago, and anything you can bring in for it now is better than $0.00.
Run a sale, offer coupons, and send out emails to your customers. Get rid of that stuff.
There is a cost to keeping it in the warehouse. Once you clear that stuff off the shelves you have more room to stock the stuff that IS selling.
Two ways to improve inventory turnover in order to improve cash flow
Bleed your inventory
This is the simple thing that you have more control over. Bleed your inventory levels down. If you are selling more than you are buying, that has a direct and positive impact on cash flow. It’s simple math. You are tying up less cash in inventory, therefore more of what you bring in stays in the bank because less is going out to buy inventory.
You can only do this for so long of course. Eventually you have to buy more inventory.
While bleeding your inventory levels, you will want to analyze how much of each product you need on hand, and what the appropriate reorder point and quantity should be. The goal is to keep just enough so that you never have to back order something. Nothing should sit on the shelves for more than 30 days in most cases. The exception might be really high value / high profit items. These will need to be there when ordered. Orders will be less frequent. Maybe as little as once or twice per year, but the profit on these items for even one or two sales per year, justifies their shelf space and then some.
The idea behind bleeding inventory, similar to blowing out unsalable inventory is to keep a closer eye on what sells well vs what doesn’t. The more often you can turn over a SKU (Stock Keeping Unit) the better your cash flow.
The strategy here is to bleed your inventory that doesn’t sell as well and stock up on what does. If an item sells twice as much as anything else, then it should take up half of your shelf space (in theory).
The point is to be strategic about your shelf space. Large retailers like Walmart analyse how many times revenue needs to be turned over per linear foot of shelf space. If you want what these guys have, you have to do what they do.
Increase Sales Volume
This is where you say, “tell me something I DON’T already know Nerd!” This is also the easier said than done part, but here’s the thing.
Stop saying, “easier said than done” and start thinking about how to do it.
- Online advertising
- Social media
- Email campaigns
This means spending time and money. Welcome to business 101. You spend time and money on advertising and marketing and you generate sales.
If you have items that aren’t selling well, but you know they sell well elsewhere, then work on your SEO. Look at the descriptions on those items. Change them. Try different ideas until they start selling more.
Run some searches on your own products as though you were your own customer. See who comes up on top and analyze their descriptions. See what they are doing that is working where yours aren’t.
Most importantly get some guidance. Find people who are where you want to be and ask for help. People who aren’t directly competing with you, but who do well on Amazon and elsewhere.
Marketing and advertising is an art. You need someone who knows this. Someone who knows how to keep altering the mosaic until the picture comes together and the means results. All of a sudden something that wasn’t working before pops. You hit that tipping point, and now you’re scrambling to get orders fulfilled.
That’s when you know it’s working.
Watch the video above and post your comments and questions below.