Determining the Appropriate Initial Quantity and the Means to Properly Maintain It
Selling on Amazon can feel exciting as you aim to launch your brand and sales volume. But some of the most critical factors in your success are often the most overlooked. For example, how much thought do you put behind your inventory strategy? Or did you even consider this something that could be strategic?
While there’s no exact science or magic formula you can rely on to appropriately stock your Fulfillment by Amazon (FBA) Inventory, there are a few guidelines you can consider as you craft your sales plan. Remember, no two situations are ever identical, but you can certainly learn from other sellers with similar needs and demands.
Optimizing your Amazon inventory requires smart initial stocking, navigation of fees and logistics, and strategic planning around high-volume periods, such as holidays.
Let’s Start from Scratch – the Initial FBA Inventory Stocking
Fulfillment by Amazon (FBA) allows each seller to manage their own inventory levels. They usually provide unlimited space in their facilities for you to stock up. Every bit of space, however, comes at a price, which makes strategic management critical to your early success. Eventually, your sales over time will give you historical data that will allow you to optimize the ebb and flow of your inventory, but you won’t have this context when you’re just getting started.
You can only work with what you know and make some calculated guesses. Start by understanding each of the following pieces of the puzzle:
Amazon Algorithms Can Reward or Inhibit Sellers: Amazon rewards sellers that are sending signals to the platform that they’re ready to sell big numbers. For inventory, Amazon responds well to sellers that stock in a “goldilocks” zone: not too much product, but not too few.
Frequently going out of stock on Amazon can be a massive speed bump on your sales growth roadmap. It’s a self-imposed punishment, since Amazon wants its customers to experience consistency across all products sold on Amazon. If you can’t stay in stock, Amazon’s algorithms can push your listing farther and farther back behind well-stocked competitors in search results.
If you only stock a few quantity on-hand, you’re signaling to Amazon’s metrics that you don’t intent to sell many units per month. Understocking is a barrier against your velocity potential. On the other hand, if you stock too much, while you guarantee that you won’t limit your potential sales pace, overstocking creates risk of much higher monthly inventory storage fees; as well as future possible restrictions on allowed storage space or even long-term storage fee surcharges. Read more about Amazon seller fees for a better understanding of all of the fees associated with selling on Amazon.
Finding the “Goldilocks” Number for Inventory Stocking Estimates: Ideally, you can project the demand for your product to determine the ideal inventory level, and historic data can help you do this effectively. But, before you have historical data, you need to assume the level of supply you provide based on your projection of daily sales. Here’s how you can accomplish that.
- On Amazon, find an established product (e.g., 100 or more product reviews) similar to yours, at a similar price and with similar features
- Add a quantity of 999 of this product to your cart. If there are less than 999 available, Amazon will inform you only XXX are available.
- Perform the same action on the same product for three days in a row, at the same time of day, to see the number of available products. Each day, the available units should be less. Record how much that quantity is reduced daily. That reveals how many sold in the previous 24 hours. For example, if at 1pm yesterday there were 585 available, and today at 1pm there are 522 available, it shows that 63 units sold in 24 hours.
- Calculate the average of the daily units sold based upon your three days’ of data.
- Use that number as your guide, along with the assumption that an established product will sell more than your new product, to come to an estimate for your initial stocking level. If you assume that your first velocity will be one-tenth of the established product, and the established product sold at 60 units daily, you can have a reasonable estimate of selling 6 units daily during your launch phase.
Once you have this number in mind, you can multiply that by 2-4 weeks of assumed sales at that level. The quantity is a reasonable “Goldilocks” sweet-spot that hopefully won’t over- or under-stock your initial inventory. 6 units daily times 21 days is 126 units.
Your Inventory & Shipping Logistics: It is easy to jump into calculations and projections without rooting yourself in the present. Logistics play an important role in your ideal stocking strategy, with emphasis on your inventory and the shipping schedule:
- Your Inventory. The level of inventory you currently have in your warehouse(s), as well as the availability and timeline to manufacture new stock based on your supply chain are essential to understand. Remember, appropriate stocking is rewarded by Amazon, so be wary of sending in excess products just because they’re available to you in your warehouse. Likewise, if your supply chain has a delay in generating new products, you may need to err on the side of stocking more.
- Shipment Schedule: Your shipping process and timing can have a direct impact on how you stock your inventory. For instance, are you currently shipping out every day for other channels, or is it less frequent? With the launch on Amazon, we recommend trying not to place an undue burden on your company and work as best as possible with your current capabilities, with shipping being a primary driver.
Note: Over Q4, Amazon is notoriously known for being a bit slower in receiving products as they receive heightened shipments during this time period due to the holidays.
Properly Manage Your FBA Inventory (for Established Seller Central Accounts)
Properly maintaining your Amazon FBA inventory is usually much easier than the initial stocking because you have access to historical data and first-hand experience, which together inform your Amazon optimizations going forward.
Getting familiar with Amazon’s Business Reports is critical, as it’s one of the most helpful resources available. It provides you with key insights to stay on top of your inventory management. These insights, coupled with the logistics of your supply chain and shipping, will drive your re-stocking approach.
Here’s one example of this in action. This Child Item Business Report below shows items sold per sku per time range. It’s exportable into Excel. This one data point can let you run a monthly audit of average daily units sold per sku. That information then advises what your 2-4 week on-hand inventory target should be per sku; when it comes time to send in more inventory into FBA.
At Toucan, we’re committed to working with all of our partners on a stocking strategy that is appropriate for them. With the right plan in place you’ll enhance your opportunity to grow your business by benefiting from Amazon’s algorithms and you’ll avoid potential negative outcomes, which can arise from over- or under-stocking. Especially in the holiday season, overstocking fees can dampen your bottom line considerably.
To have a conversation about your specific situation, reach out to us, we’d be happy to help you calculate the initial magic formula for your Amazon fulfillment.