When I was in business school, we studied the importance of inventory turnover. Five years later, as an Amazon FBA seller, I am so glad that my professors drilled this into our brains because it is really a very important aspect when owning a business.
So lets start from the beginning, what is inventory turnover? Then we will talk about what Amazon scores us on and how it affects our seller central account.
What is inventory turnover?
Inventory turnover is the number of times you sell and replace your stock of goods during a period. It is a ratio calculated by dividing the cost of goods sold by the average inventory of a period (since inventory fluctuates throughout the year).
My professors always told me that it is important to manage your inventory. You never want to be out of inventory obviously because that means loss in sales that you would have potentially made if you had the inventory. BUT it is just as important to not have too much inventory, because of the costs for storage fees, electricity bills, expiration dates, the possibility of new models or changes in consumer spending...the list goes on.
What they told me and from what I learned from selling on Amazon, my sweet spot is to have enough inventory for 30-45 days. Of course for 4th quarter, I up the numbers because this is the period when consumers spend the most money, for the holidays.
What does this mean for products on Amazon?
If you are already an FBA seller, you might have noticed in your seller central account that you are being scored on a 0-1,000 scale based on your inventory performance. But you definitely notice every quarter when fulfillment by amazon emails you as to whether you will have storage limits this upcoming quarter or not. Yes, that is correct: they will limit the amount of product you can send to their warehouses if you do not keep your inventory turnover in check.
So remember to restock your products before they are all sold out, but also only send in as much as you know will sell!