Understanding, Identifying, Strategizing and Preparing your Inventory for Q4
Are you ready for the biggest holiday rush? Need strategic seller tips to smash Q4? We’ve got it covered. In this post, we’ll explore the steps you need to take to prepare your inventory and the actions you need to apply to win Q4.
1. Understand your inventory
To prepare your inventory for the Q4 whirlwind, you need insight. To get the insight, you need the data. Feedvisor’s 2016 study of our customers’ storefronts gives you access to that data. Our data from last year shows that there’s a 45% increase in demand from Q3 to Q4. This huge jump in orders requires you to focus on the part of your inventory that really matters — the items that generate profit.
2. Stick to the 80/20 rule
As a general rule of thumb, applying the 80/20 rule will help you identify which items you need to concentrate on. If 20% of your inventory drives 80% of your profit, you need to understand which state each SKU is in its life-cycle in order to apply the right strategy.
3. Identify the item’s life-cycle stage
We’ve identified four different stages in the growth of an item’s life cycle:
- Introduction. During this immature stage, items usually tend to be private label and might start at negative profit and sales. Patience is required as it can take a while before positive margins begin to show.
- Growth. Once an item begins to pick up momentum, the margin will see an increase.
- Maturity. Competitive sellers usually jump between the growth and mature state, depending on the state of their SKUs.
- Decline. Poor selling items are at the decline stage.
4. Identify the different types of items
Grouping items into different categories will help you understand which plan of action you need to take. Items fall into the following three categories:
- Seasonal. These items generally only generate traction during the holidays and peak times.
- Ongoing. These items are moving constantly so they are usually at the growth, maturity or decline stage, depending on how much profit they generate.
- Liquidation. These items are on the decline and require an immediate response.
5. Identify the item’s conversion rate
Once you’ve identified each item category, you need to identify the state of the SKU and decide where it’s sitting.
Items with low sales
- Low sales and high profit margins: These items are usually at the introduction stage. The ASIN or product line hasn’t gained as much traction as planned but with Q4 this might change.
- Low sales and low margins: These seasonal or ongoing items are sitting there as they haven’t picked up steam.
Action: Focus on the low sales. If the product is dying, reassess your floor price and liquidate so you can move the product and avoid leaving money on the table.
Items with high sales
- High sales with high margins: High margins are breadwinners. They need to be monitored on a consistent basis to ensure the ceiling price is high enough during the quarter.
- High sales with low margins: Take a hard look at why the margins are low. Are you making bottom line on volume? How is your relationship with your supplier?
Action: Is your priority sales or profit? Track your pricing and stay on top of replenishment.
If you use a software tool like Feedvisor’s Amazon repricer, you can add a comment to the notes section in the revenue intelligence dashboard to know which action you need to take.
6. Create a winning strategy for each item
Ongoing items: Prepare a solid replenishment plan
Widen your price range for these items as volume and price will increase. If you’re using an Amazon repricer, like Feedvisor’s, raise your ceiling price and make room for growth so you’re not scrambling in the nick of time. To succeed in Q4, you need to track, monitor, take care of orders and fulfillment and be 100% replenishment committed.
Strategy: If you normally replenish every two weeks, replenish more to stay on top of things.
Seasonal products: Prepare a template for estimated days in stock
It’s hard to predict what the demand will be, but you can rely on last year’s numbers.
Look at your last year’s 30-day velocity during the peak times. To measure your stock coverage accurately, divide the quantity of items in stock by the last seven-day velocity. It might even be three- or four-day velocity.
Strategy: Maintain biweekly checks on estimated out-of-stock dates with strategy changes. You can sell out on a whim so just keep track for any pivots or changes on the flow of these products.
Liquidation products: Prepare to lower your prices
Strategy: Prepare a floor price plan for peak times in the quarter now. Assess liquidated floors and consider if there is another channel, like eBay or Walmart, that might be worth selling these items on. Look at the upcoming Seller Central report for long-term storage fees. What’s the cost to dispose of, recall, or pay long-term storage fees? Work out what’s cheaper for you and understand the level that you’re willing to bite the bullet.
Once you work out your level of replenishment, manage your inventory with biweekly checks on estimated out of stock and in stock dates. As it’s the big money-making season, you want to keep investigating the items so you can set the right price, make a healthy profit, and assess the situation while you’re still in control.
This is the first in a two-part series on Winning Q4 with Data-Driven Business Decisions (an excerpt from a recent webinar we co-hosted with CPC Strategy and SellerLabs)
To listen to the webinar, click here