We've all struggled with this issue since we started business. How much inventory do we need? How much is too much? Inventory dollars tie up our available cash and can detract from our liquidity, but not having enough inventory will cost you sales, plain and simple.
Where is the balance? Companies spend millions of dollars every year trying to figure the answer to this question out, but as we're sure you know, they still usually don't get it right. We've posted a few tips below to help you make those decisions. We hope they help.
1. Ask companies you deal with for a top 100 report (or a top 10 or top 20 report if the line they offer is small). Most of the time, your supplier is more than willing to tell you what sells better or worse. You can also request a line review from some companies, where they will go item by item and analyze your current stock. If you make money, your supplier makes money. New Level
offers line reviews at no charge to our wholesale customers.
2. If you don't track annual sales history, consider starting. A common practice to maintain inventory is to take the number of units sold in the prior year or 2 years and multiply it by your sales growth percentage(which you may need to estimate) to estimate the number of units you will sell in the next year.. New Level
Can give you annual sales history for all purchases made through us at no charge.
3. Take lead time into account. Some vendors have long backorder periods. Brand new products tend to sell out if they are a hit. Some items have fast fill times shipping your order the same day placed, some take weeks to fill an order. The exact same item could experience both situations depending on the time of year. There are countless variables. This should be taken into account when ordering. Waiting to run out of an item is a mistake and will result in lost sales. New Level Motorsports has some of the best fill rates in the industry, however no manufacturer has a 100% fill rate and that is to be expected and should be accounted for.
4. Expect backorders. Even when a company is sold out of an item, place your order anyway. This usually gets you a place in line for when that item is back on the shelf. Another thing to prepare for is the "back to back backorder", as we like to call it. If a company has been out of a product for awhile, when it finally comes back into stock, demand usually spikes briefly and the company sometimes will run out of that item again very soon. Also watch for trends with your dealers. Some backorders can be predicted ahead of time, allowing you to stock around them.
5. Watch your inventory turnaround time. This is the amount of time an item sits on the shelf before it is sold. Markup is a big determination of how much turnaround time is acceptable. The higher the markup on the item, the longer you should be willing to hold onto it. If an item with a low markup is sitting more than a month, you should think about putting it on sale and getting it out of your stock to free up those dollars for something with either more markup or a faster turnaround time.We're always happy to suggest stock amounts and skus, so don't ever hesitate to call and ask us for help. That's what we're here for!