When To Remove FBA Inventory: 5 Questions To Ask
- November 29, 2015 | Marcus DeHart
Let’s face it, nobody wants to remove their Fulfillment by Amazon (FBA) inventory from Amazon’s fulfillment centers. You’ve spent a lot of time and money on prepping, labeling, packaging, and shipping your products to Amazon with the hopes that it will sell.
But at some point you will likely realize that paying for storing your inventory will cost you more than having it shipped back to you. With Amazon’s biannual inventory cleanup, you’re storage fees will go up, eating into your gross margin. Deciding when to cut your losses and remove your inventory needs to be baked into your business model so it doesn’t catch you off guard.
Amazon offers a number of reports that can help you identify products that are overstocked or getting stale on Amazon’s shelves. But before you look at these reports, you need to assess your products and determine how much of a loss you can handle and whether the risk of waiting a little longer might pay off. Here are a few questions to ask yourself about your products.
1. What is the profit on your product?
If your margin on the product is high, you might find it worthwhile to stick it out a little longer. But since margin is a percentage, lower-priced products might not be able to endure the long-term storage fees that could be imposed twice a year.
Higher-priced products stand a better chance of surviving the waiting game and still bringing home a profit. Figure out what the tipping point is for you. Group your inventory by profit and when it comes time to decide which ones to remove from Amazon, you’ll be able to make a quick decision.
2. How much are you paying for storage fees?
Storage fees are assessed by the space that your product occupies on the shelves. The first time a product enters Amazon’s fulfillment center, staff scan it to determine its length, width, and height as packaged for sale. They then multiply these figures together to come up with the cubic feet of each unit. So a set of 12 inflated playground balls that sells for $15 will cost more to store with Amazon than a set of earrings that sells for $50.
Create a quadrant to group your products by high and low profit horizontally and high and low volume vertically. You can stand keeping the products in the lower right quadrant (high profit, low volume) in storage longer than those in the upper left quadrant (low profit, low volume).
3. How often do you get a sale?
Or, how soon do you think you’ll be able to sell through your remaining inventory? If you have a dozen units left of a product that consistently sells through an average of six every month, then you can reasonably expect that your remaining inventory will sell out within the next two months. It might not make sense to remove that inventory if selling it will cover the additional cost of storage. On the other hand, if sales are inconsistent or nonexistent, leaving a large volume of inventory even one more day might be costly for you.
Use Amazon’s Inventory Dashboard to monitor how frequently your products sell. The Manage Excess Inventory report provides a 'Days of Supply' column that forecasts how long before your inventory sells, broken down by product. For your inventory with higher profit and lower volume, you can extend the 'Max Desired Days of Supply' to a level that you can tolerate while you shorten the desired days for high-volume, low-profit products.
4. Is the product a seasonal item?
It can be hard to sell swimwear or back-to-school supplies in January. Christmas ornaments and calendars just aren’t that popular in August. If you have seasonal inventory left over at the end of the targeted season, sales history won’t be so helpful if you're only looking back a few months.
If you do find yourself with inventory at the end of a season, you always have the option of dropping the price to clear out your inventory. But if that fails, removing the inventory might be your best option. Develop a calendar with reminders for evaluating seasonal inventory and cutoff dates for when you must sell it before deciding to remove it from Amazon’s fulfillment centers.
5. Is there a new version or model releasing soon?
Tablets and smartphones are notorious for constantly being upgraded to new versions that quickly make old inventory obsolete. Clothes go out of fashion. Tools and appliances get upgrades. Televisions get new features.
If you’re left with last year’s inventory and a new version is just on the horizon, you can go the route of seasonal inventory by offering clearance prices for penny-pinching shoppers. But that strategy might only get you so far. At some point, you’ll need to decide when removal is necessary. Keep alert to manufacturer updates, upgrades, and new releases, and monitor your inventory quantities to determine if you can sell through before the new releases come out.
Get it done
Once you’ve identified inventory that you want to remove from Amazon’s fulfillment centers, you still have some choices to make. In my next post, I’ll address the options for requesting a removal and how to decide whether to have Amazon return or dispose of the inventory.