The Amazon Stockout: Preventing and Managing Through Out-of-Stock Inventory
If you saw our recent post about 10 ways to source inventory for your Amazon business, then it’s safe to say you are well-versed in stocking up on product. But what happens when you run out of inventory? The consequences are dire: you lose sales and Amazon SEO rank while your competitors continue to grow and increase their Amazon sales. Lose, lose, lose.
But if you have solid plans in place you can prevent a stockout and mitigate the impact to your Amazon business. Here, we break down everything that could happen with an Amazon stockout — and how to avoid it.
What Happens When You Go Out of Stock
Wouldn’t it be great if going out of stock just meant that you’d get an alert from Amazon to order more inventory without losing your listings, sales rank or competitive advantage? If only. Truth be told, a stockout could have major repercussions on your business. Here’s a look at what could happen:
Lose Sales & Competitive Edge
When you go out of stock, Amazon automatically removes your listing, marking it “inactive”. And when you don’t have an active listing, you don’t make sales. Period. This is because Amazon doesn’t let customers “preorder” an item that’s in the process of being restocked. Instead, your potential customers purchase from the other seller’s listing.
Jeopardize Your Product Sales Rank & Visibility
When your listing is inactive, it doesn’t show up in search results — but your competitor’s listings do. As your competitors make new and more sales, they’re able to source more product reviews and ultimately build up their own Amazon SEO. In turn, your rankings will suffer once your listing is reactivated since it will need time to get back to the top of the search results.
In some cases – and especially during your busiest seasons – you may sell more product than you have in stock to ship, and you don’t realize it until it’s too late. This means you have to tell a customer that you actually don’t have the product they thought they just purchased. They will go to a competitor who does have the product and as a result, you risk losing their trust and business, and could wind up with a negative review.
Avoiding the Amazon Stockout
The good news is that you can avoid an Amazon stockout, so long as you have a solid inventory management strategy. Here are a few ways to ensure you’re making smart “in stock” decisions:
Manage Supplier Relationships
Whether you have a longstanding relationship with your suppliers or are looking for a new one, you should make sure that you understand their production cycles and that they understand your sales cycles. You don’t want to be blindsided by a delay on their end.
Check out the Profitable Playbook from Teikametrics for strategies to manage your suppliers:
Lead Times: How long does it take for your manufacturer to produce a new supply? Do production times vary depending on how many units you order?
Supplier Relationships: Can you negotiate better terms with your suppliers? For example, if you can guarantee a minimum order each month?
Sales Cycles: When are their busiest times of year? Are there any holidays that affect production timelines? This is especially important if you order product from overseas and need to navigate around holidays like Chinese New Year.
Pro Tip: David Marshall, Jr., Payability customer and Amazon seller, keeps an open line of communication with his suppliers to ensure that his inventory is replenished in a timely fashion. “I made an arrangement with my supplier so when I order stuff, he has some in stock and on supply for me,” he says. “I also let him know in advance how much I’m going to order and when so they can start to make my product. Then when I wire them payment, they can ship it immediately.”
Know Your Sales Cycle & Sales Velocity
Chances are, you have a busy season or two throughout the year — for example, if you sell grilling tools, you’re going to make most of your sales in the spring and summer. As a seller, you should also keep the busy holiday season top of mind. The holiday rush can start as early as September when customers are essentially glued to their Amazon Prime accounts and apps buying everything from decorations to gifts to wrapping supplies.
It doesn’t matter when your busiest sales season is, you just have to know when it is so you can plan accordingly by bulking up on inventory. If you’re a seasoned business owner, take a look at your sales trends over the last year to get a sense for your high sales velocity days, weeks or months. And if you’re new to Amazon, look up the sales history for a product you might start selling so you have a general sense for its high demand days.
Check Amazon Selling Coach
In Amazon Seller Central, there is an “Amazon Selling Coach” report that shows you your inventory levels for each of your listings, including sales to date, current inventory, days until out of stock, etc. It even recommends how much more inventory you should have based on your current sales velocity so that you won’t go out of stock.
Extreme Measures to Avoid Stockout
We normally wouldn’t recommend that you purposefully slow your own sales, but this is a smart way to prevent yourself from going out of stock while you replenish inventory — all without losing your listing or rank. So keep tabs on your inventory levels, and when they’re running low consider these two strategies:
- Pause any marketing or advertising campaigns you may be running online. This way less people will be driven to your listing.
- Increase the price of a product to decrease its demand.
- Change your listing setting to “on vacation” (though keep in mind this will only turn self-fulfilled listings inactive; if you are an FBA seller, the listings will remain active).
Reinvest Profits in Inventory
One of the smartest things you can do as your business grows is use your profits to invest in buying more inventory first.
Cushion Your Cash Flow
As a business owner, maintaining a steady cash flow can be a daily challenge — but it doesn’t have to be. With a service like Payability, you can access your Amazon income as soon as one business day after making a sale.
Having next-day access to your funds allows you to purchase more inventory at a faster rate, and could give you leverage with your suppliers. In other words, you could negotiate better terms with them if you can guarantee more or larger orders. This, in turn, could lead to higher margins for you — and more cash flow.
Regardless of how you go about managing or avoiding an Amazon stockout, you should consider using an online inventory management tool such as our friends at Teikametrics.
Have you been hit by an Amazon stockout? What inventory management tools do you use to prevent your business from going out of stock? Share your story with @getpayability on Twitter – we’d love to hear from you!