Cost of going out of stock on amazon

What does it cost you to stockout on Amazon?

Inventory, inventory, inventory… A few units here, a couple more there, save a few for my business website… some on Ebay… back fill a little more on Amazon and voila… all my selling channels have stock and are ready for a weekend of sales.

I hope I allocated the limited quantities correctly, but hey – if something sells out then I’ll just switch it all around on Monday, right?

Fast forward one weekend to Monday morning.

My Amazon stock ran out on Friday night? My seller account went a whole weekend with nothing available? Gulp.

How much does a going out of stock really cost your business?

This is a question that is completely subjective, depending on more business factors than you can wave a spreadsheet at. Profit margins, fees, shipping costs, lead time, delivery time, replenishment, physical stocking, replenishment, the cost of doing business, replenishment and the cost of money itself, replenishment… Getting a headache yet? Did I mention replenishment?

Unfortunately, the simplest and most grossly blanketing answer despite all the calculations is–it costs a lot. It’s costs your business a whole lot of money when your stock on a product goes into that pit of despair called; “Currently Out Of Stock”. Why? Because to Amazon, your empty inventory translates to a view of unreliability to which they must make you suffer by stripping your sales ranking. Not to mention the fact that your competition gets the jump on you and sells you under the table.

Let’s also remember that your inventory bottoming out on an FBA product has far greater ramifications than a similar situation selling FBM. Think of the amount of time it takes to replenish stock for FBA. Calculating, picking, labelling, packing, shipping, waiting and Amazon processing. It all adds up to a lot of time and you can double that time around the holidays. If you are relatively new to the FBA game then it is a steep and unforgiving learning curve to endure–and everyone does it sooner or later.

The key? Careful planning to rotate new stock into place before old stock sells out. In theory it is relatively easy. If you’ve got more than one product to sell, not so much.

The ‘hot product’ trap

“Who cares if I sell out? So what If I miss a few days of sales? This product is so hot, it’ll just sell when it gets there.” Don’t fall into this trap. As soon as you finish speaking these words is when the amount of sellers selling this product increases exponentially and your slow-to-ship inventory just fell behind the crowd. Two weeks (or more) later, when your items finally arrive, get processed and finally get stocked back up for sale, it’s entirely possible that it’s now all over.

Aside from that possibility, the long-term effects of allowing your inventory to bottom-out is the fact that you are losing customers. Not to mention that every stockout even has the potential to destroy your sales ranking for that product–especially if you are the lone seller of that ASIN. It is extremely difficult to recoup that sales rank once lost.

Your customer base is never steady

You never ever have the same amount of customers for any period of time. You are either gaining customers or losing them. The more successful sales you make, providing excellent customer service, fast and attractive shipping, positive follow-up and incentives for future sales, the more customers you gain. It doesn’t matter if they come back to you on Amazon or at your own WWW site; just that they come back again and again.

If you don’t have what they want to buy, they will buy it from someone else and your competitor then has the opportunity to make that customer theirs for a long, long time. If you really consider the single customer – you could potentially lose thousands of dollars in sales over the lifetime of a single lost customer if you let your product flat-line for even one day. Scary.

How do you know what products are ripe for Amazon fulfillment?

Do a simple cost comparison using Amazons profitability calculator. It’s as simple as knowing your item costs, fulfillment costs and a couple of variable fulfillment costs. For example, make sure you know what it costs to pick, pack and ship items. By utilizing this tool, you can easily calculate the profitability potential of any item in Amazon’s catalog of a kajillion products with the click of a button.

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How do you prevent future stockouts?

    1. Don’t underestimate sales trends. If a product is selling – even just three sales per day – factor into your calculations that three per day translates to 21 per week, 88.2 per month, 264.6 per quarter and 1058.4 units per year (and then quadruple the monthly sales for the two months leading up to Christmas and Chanukah) you’re talking about major bucks on the line here for one single product at “just a few per day”.
    2. Send more than you did the math for. If mathematics tells you that sending 100 units to FBA fulfillment is the right number… send 120. Unless you are selling steel girders or lead coffee tables weighing in by the ton instead of the pound, up your send amount by 20%. Do you run the risk of a few of them sitting there? Sure. Is it a greater risk of stocking-out? No. Send em.
    3. Stop being lazy. Now just sit down. I’m not calling YOU lazy, I’m telling you that business gets in the way of productivity. You’ve got a lot to do and a lot going on, right? But if you slack off on these individual calculations and miss an opportunity, you’ll be kicking yourself later. I know you’re busy being busy, so put someone or some team to the task of watching, maintaining and doing this every single day. You might also consider…
    4. Utilize software to help you with these problems and keep your business on track. 

Skubana can be of excellent service in this respect. Skubana will:

  • Seamlessly integrates all of your warehouses and 3PLs to reflect accurate inventory per SKU.
  • Establish minimum levels to automatically generate purchase orders and restock your inventory before you hit peak seasons.
  • Inventory allocation so you could focus on your more profitable channels.
  • Set false inventory count to create a sense of scarcity, while allowing your system to automatically refill at those levels.

I think you’re getting the point that stockout = bad. You can do this, and you can be successful at this with a little time, patience, perseverance and the correct devotion to the correct resources. Profits on the product might seem tiny, but profits in terms of income can be impressive if the juggling is performed to the fullest extent with the maximum amount of products in your line priced competitively and with a healthy and robust inventory to back them up.

This post was contributed by Chad Rubin, a TOP 250 Amazon Seller and CEO of Crucial Vacuum and Skubana. Skubana is an all-in-one ERP system that integrates seamlessly with your entire e-commerce business, including Amazon, providing real time inventory management as well as detailed analytics into your true online profits.