Efficient inventory management is more crucial than ever in the fourth quarter, especially if you are selling in the Amazon marketplace. Research shows that almost 73% of Amazon sellers generate half of their total sales for the year during Black Friday, Cyber Monday or Prime Day alone.
When it comes to planning for Q4, it is never too early to start thinking about your approach. With less than a month until the close of Q3, now is the perfect time to optimize your inventory management so it can go more smoothly once the real rush starts.
In this article, we put together the steps you can take to get your inventory ready, streamline your processes and increase holiday sales.
Top 5 Q4 Inventory Management Tips
Know Your Inventory
Inventory management is an integral process that affects several areas of your Amazon business. Knowing how to balance your inventory levels to prevent under or over stocking is vital to your sales and expenses. Low stock levels can result in lost sales, while excessive slow-moving products can lead to hidden expenses and cut drastically into your profits. In fact, seasoned Amazon sellers point out that FBA storage fees are the biggest Q4 profit-killer. Not only will you have to put these products on sale next year, but you are also paying for storage fees for products that are not even selling. During the fourth quarter, Amazon increases its storage cost to $2.40 per square foot from its standard 69-cents per square foot. An additional $6.90 is also charged per square foot for items stored for longer than 365 days.
Part of inventory management is being ready with all the necessary supplies in place. It is important to have enough supplies such as tape, labels, polybags and boxes, to last you through the fourth quarter.
Be Mindful of the Key Dates
While Amazon has not announced its shipping deadlines for key events in 2019, you can use the 2018 dates as a rough estimate. This way, you are prepared well in advance, can ship your products before the deadlines, and get sales in Q4. Below are the probable deadlines based on last year’s guidelines. We will update you once the 2019 deadlines are published.
- November 04 – Possible cut-off date for FBA inventory for Black Friday and Cyber Monday
- December 04 – Possible cut-off date for FBA inventory for Christmas shopping
- December 16 – Inventory for 2020 should be sent to Amazon fulfillment centers no earlier than December 16, 2019. Until then, please only ship items to Amazon that will sell on 2019.
Watch Your Inventory
If you have been selling on Amazon for a year or so, you’ve got the benefit of experience on your side. Check your Q4 data from last year or the previous years (if they’re available) to review sales trends and history for your top selling products. As you do that, consider asking yourself these questions to assess the sales potential of your current products.
- How have trends changed in your niche over the past year?
- Did you encounter issues with stockouts or overstock last year?
- Did your estimated profit margin soar or dropped for each product in your inventory?
- What can the previous sales show you about the potential sales for this year?
Remember that not all products that were in demand the past year will have the same demand this year. Sales and demand can change substantially over the course of a year. Thus, it is vital to understand the market and the projected life cycle for each product you sell as this can give you a better idea how much more demand you can expect in Q4, allowing you to make informed restocking decisions.
Follow the 80/20 Rule
You gain deeper understanding of your inventory by following the 80/20 rule. Concentrate on the top 20% of your listings, as it is where 80% of sales and profits for your business usually come. As a matter of fact, your top 10 selling items are responsible for the 40% of your revenue. That said, focus your actions on these key items and develop customized strategies around them. To do this, assess and categorize your inventory depending on how fast they move and how much profit they bring.
- For items that move quickly and make high profit margins, you will want them to be available 100% of the time.
- For items that make high profit margins but with reduced sales, try dropping their costs to see if they will begin moving faster.
- For items that move quickly but generate low profit margins, find out which of these items are worth replenishing and which are not.
- For items that do not sell quickly and do not bring in much profit, use Q4 to liquidate these items and invest in other items that move quickly and yield high profit margins.
Raise Your IPI
Improving your Inventory Performance Index (IPI) score ahead of Q4 ensures that you have the maximum amount of storage and the maximum amount of sales during the holidays. You still have enough time to raise your IPI score before Q4 begins. Again, examine which of your products are not moving fast enough and find out how you can move them faster prior to Q4. You will also want to prioritize and resolve items stuck on the shelves before they become unsellable, as Amazon will most likely ask you to remove them from its fulfillment centers.
Why is your IPI score important?
Amazon IPI is a score between 0 and 1,000, which Amazon uses to evaluate a seller’s FBA inventory management over time. An IPI score above 550 shows that you’re doing great in business, while a score below 450 means you have to take immediate action for improvements. The score also determines the amount of stock you can store in Amazon’s fulfillment centers. If you have a score of 350 or above, you get unlimited storage access for standard and oversized items. On the other hand, if your score drops below 350, Amazon will notify you 6 weeks before the end of a quarter. The IPI metric is especially important for the weeks leading to Q4. If your score is below 350, your storage limit during the last full week of Q3 will be carried over to Q4.
Monitoring your IPI allows you to track your inventory health, maintain consistent sales and ensure there is plenty of room in Amazon’s fulfillment centers for all the products customers want to buy over the holiday season. By boosting your IPI score, you also boost your sales performance. A good way to keep your IPI score healthy is by automating your inventory management as this streamlines your processes and helps you make more informed inventory management decisions.
Having a concrete plan is the only way to see success in Q4. You need to put in the time and effort to analyze your strategy throughout the year so you prevent inconvenient stockouts and other problems that will hinder Q4 sales.