Inventory control and management is one of the most challenging aspects of building and sustaining a growing retail business. And at some point in your journey, you’ll likely run into periods with slow-moving inventory.
A collection of unsold items on your warehouse shelves doesn’t automatically mean your business is in trouble. But having a good understanding of what slow-moving inventory means in your industry, how to identify it, and, most importantly, how to address it will save you money long-term.
What is slow-moving inventory?
As a product-selling business, you likely have hundreds, possibly thousands, of stock-keeping units or SKUs in your storage and shipping facility at any given time. Slow-moving inventory is those products that haven’t sold within a desirable time frame and continue to sit on the shelves (and could be classified as inventory waste).
Every industry will qualify slow-moving inventory differently. Paper products like notebooks or calendars will naturally have a much longer shelf life than fresh products like food or beverages—those items are only usable for a fixed amount of time, so the timeframe that fresh goods have to become slow-moving is significantly shorter.
Many businesses operate on a 90, 120, or 180-day cycle, where products still for sale after this time are considered slow-moving items. But even within a single business, different products have their own life cycle. Understanding and considering this is important as you determine what makes sense for your company.
There are countless reasons a product isn’t selling as expected, with some being more manageable than others.
- New competitors coming to market with an updated product.
- The item is not as desirable to your target audience.
- Your marketing has become ineffective at reaching your customers.
- Wider economic conditions have lessened customer buying power — especially with big-ticket items like technology, vehicles, and appliances.
Why are slow-moving products a problem?
Sufficient capital is what keeps your business moving forward. Slow movers have a significant impact on this in two ways:
- The products you’ve already paid for eat into your profit margin and lose value over time.
- Slow-moving stock takes up storage space, which you’re also paying for, and is at risk from environmental factors like flooding, fire, or theft.
The longer inventory items stay on shelves and not in the hands of the customer, the higher the chance of your goods becoming obsolete and ultimately losing your business money.
How is slow-moving stock different from obsolete inventory?
Otherwise known as dead stock, obsolete inventory is products that customers don’t want and are unlikely to sell. A 2022 report found that around $163 billion worth of inventory ends up in waste each year.
Products typically shift from slow-moving to obsolescence at some point in their life cycle, although this process can take months or even years.
How to identify slow-moving inventory in your operations
Knowing what’s not selling and why can help your business quickly overcome the problem and develop a viable solution. Not every slow-mover in your product line is rooted in the same issue, so it’s vital to understand what’s going on at every level.
Understand your inventory turnover
Your stock turn rate, or inventory turnover ratio, shows how many times a product has been sold and replaced during a set period of time. A low ratio may be a signal that you have excess inventory, while a high ratio can suggest strong sales but also insufficient stock levels. Average inventory turns are between 5 and 10, which means you’re selling and restocking every 1-2 months.
Knowing what’s normal for each product allows you to see behavior outside regular sales patterns.
Identify where you have overstock
If a product is piling up on the shelves of your warehouse space, you might have overstocked. Carrying costs can quickly eat into your profit margin, and these items take up valuable space that’s preventing you from ordering more of your bestsellers or bringing in new products.
Compare sales data to inventory forecasting targets
Whether you have historical product data or not, accurately predicting what future sales look like is key to running a profitable business. Tracking real-time sales figures against your goals over time highlights where predictions may be increasingly inaccurate and provide a strong signal that something in your business or industry has changed.
Review shipment frequency and average days to sell metrics
The average days to sell on each product inform your turnover rate, but a standalone metric can also give you an idea of what a natural lifetime is for each product. Use this as a baseline to measure against when forecasting.
The same goes for shipment frequency. If this number slows down, this is usually a sign that customers are buying less of the product. For businesses where stock automatically reorders once inventory drops below a set level, look at how often restocks are happening and if there’s consistent decline here too.
Look at overall gross profit for your business
While your gross profit doesn’t give you a product-level view of your business, knowing how much your business is bringing in and where this fluctuates can start pointing you in the right direction. When combined with other data, gross profit can help you pinpoint inefficiencies in your operation.
3 Effective strategies for selling slow-moving inventory
Before relocating stock to obsolete or dead stock status, try to sell what you already have to recoup the cost of goods purchased and clear warehouse space for more profitable inventory.
Put the product on sale or as part of a promotion
Reducing the price of goods with promotional pricing, either temporarily or permanently, is the simplest and quickest solution. But this also must come with acceptance that you’re likely to make less profit than you’d originally planned.
Remember, though, that making any profit on slow movers is better than losing out entirely. If you suspect sales may pick back up, consider a fixed-term sale or bundling the slowest moving SKUs with more in-demand items.
Invest in more marketing
Review how the product is currently being promoted and where you may have gaps to fill or can boost an item’s desirability.
Does the product need clearer photography online? Could it be more prominently displayed in-store? How easy is the product to find on your ecommerce site? By asking these questions and overhauling your marketing of an individual SKU, you could see sales increase within days.
This is especially true if you sell through a third-party vendor like Amazon. Renaming product pages or freshening up imagery could be what’s needed to get your items in front of more eyes.
Experiment with new marketing channels and add value for your customers. Blogging or creating video content should be considered, not as a direct sales method, but as a means to educate and inform your audience. While this can be a long-term strategy, balancing this with more immediate tactics could permanently improve a slow-movers sales potential.
If all else fails, turn to liquidators
When you’re struggling to sell a slow-moving product and you’re accruing carrying costs by keeping the items on hand, it may be time to consider liquidation. These companies will buy your excess stock at a reduced price and can be the best option if obsolescence is on the horizon.
3 Ways to prevent slow-moving inventory in your retail business
Effective inventory management systems are the best way to assess every stage of a product’s life in real-time and identify when stock could become slow-moving.
Forecast customer demand for your products
Accurate demand forecasting allows businesses to implement early warning systems to flag potentially volatile products. You’ll also be able to track seasonal fluctuations where products may be slow-moving for a legitimate and self-resolving reason.
Having firm numbers in hand makes merchandise planning simpler and more cost-effective. With predictive data, you’ll know when to restock items ahead of customer demand and when to pull back on increasing your inventory levels, freeing up funds to spend in other areas of the business.
Clearly communicate along all stages of the supply chain
Good customer service relies heavily on open communication between your business and the people you serve. But this should also extend back to your supplier and vendor relationships.
If there are delays in products being manufactured or shipped, you wouldn’t think twice about letting your customers know as soon as possible. Likewise, you should inform your supplier if you foresee overstock issues coming down the line.
They may be able to hold this inventory themselves, or press pause on the manufacturing process before a product is created. This saves on both warehouse space and holding costs on inventory with an unknown selling date.
Monitor wider changes beyond your industry
Don’t forget where your business fits into the broader picture of industry worldwide. Global situations like economic downturns can rapidly change demand for your product and upend your sales estimates.
While you don’t need to become an economist to use this information in your business, it’s helpful to be aware of the wider circumstances that could mean your goods are no longer necessary or have become too expensive for your target audience.
Equally, on a more positive note, this should also be the case for viral trends. If you can turn around products from manufacturing to market quickly, you can capitalize on trends occurring on social media or in the news. Understand where your products fit into the broader market and how you can shift your marketing and sales towards trends, even if seemingly unrelated to your industry.
This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.
18 business ideas for freelancers
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money. The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Whether you’ve come to embrace WFH culture, need to supplement your income or have joined the Great Resignation and are now looking for more fulfilling work, starting a freelance business can be a great solution.
Freelancing often comes with a number of perks, like getting to be your own boss, setting your own hours, and working from wherever you like. Start-up costs are often low. And, if you need some capital to get your business going, you may qualify for a small business loan for self-employed people.
However, starting your own freelance business can take a lot of hard work and hustle, and it may be some time before you start making real money. If you’re up for the challenge, here are some home-based small business ideas to help you brainstorm the best way to tap into your talents and flex your entrepreneurial muscles.
Related: How to run a successful small business: 9 helpful tips
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If you have a great eye and a decent camera, you may be able to turn your creativity into cash. One option is to sell your photos to a stock imagery site like Getty Images or Shutterstock. If your home is particularly picturesque, you might offer to do headshots or portraits in your yard or set up a home studio. If you’re interested in event photography, you can market your services to people who need professional photography for weddings, graduations, engagements or other events.
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If you are both creative and technical, you might enjoy freelance web design. A web designer typically builds all the elements of a website, including the graphics, type fonts and layout. You’ll likely need to have some knowledge of basic programming languages, such as HTML, CSS and JavaScript, and also know your way around image editing software like Photoshop. You can learn these programs through research and practice or classes. When you’re ready, you can create your own website to showcase your skills and market yourself to potential clients.
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Virtually every business needs creative elements like logos, web designing, memes, blog posts, infographics, ad banners and more. That means there is often a lot of opportunity for a good graphic designer to get freelance work. To become a graphic designer, you typically need to have strong drawing skills, knowledge of graphic design theory, and mastery of design software (such as Photoshop and Illustrator). You can take a degree course in designing or learn it online. Once you have some solid skills, you can start marketing your design services to potential clients.
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If you have an eye for color and composition and love to create beautiful, inviting spaces, you may want to think about getting gig work as an interior designer. You don’t necessarily need to have a degree in design to become an interior design consultant. You can just create a portfolio of some of the successful redesigns you’ve done and ask your friends and family to start recommending you.
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If you have video editing skills and are looking to freelance, you may find yourself in demand. With the growing prevalence of video in social media and marketing, the need for video producers has grown in recent years. Even if you don’t have a lot of experience cutting and editing video, you can hone your video skills with online classes and tutorials. As a video producer, you can have the flexibility of working from home on a variety of projects while also utilizing your creativity.
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Does your skill set include online advertising, content writing and SEO? If so, you may want to consider starting a digital marketing services business. When companies roll out new products, they often need help handling external communication and messaging, including email campaigns, online advertising, and social media marketing. And since it’s digital marketing, you aren’t likely to be rooted in any one location.
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If you understand how engaging multimedia content can be used in marketing, then social media consulting may be a good fit for you. As a social media manager, you can help companies understand how to use Facebook, Twitter, Instagram and other platforms to reach their business goals. If you can stay on brand, share content appropriately, and reply to customers intelligently, you might make a great social media manager.
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Companies of all types and sizes are using data analytics to understand trends in customer behavior. Data analysts use a variety of analytical tools to assess things like sales numbers and performance, identify market trends, and then write reports that chart their analysis and recommend future strategies. This can be a great freelance option for people who have been working in data analytics. However, beginners can take online courses and enroll in certification programs to master the required skills.
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To stay competitive, email marketing is a must for many companies. And that can be great news if you are a strong and creative writer. Having a background in sales and marketing can also serve you well. Email marketing pros need to be able to craft creative and compelling copy about a company’s products, services and promotions, and convert readers into buyers. The job may also include monitoring email marketing campaigns, building email databases and tracking results.
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SEO service providers utilize search engine optimization to make sure a company’s site comes up high in online search results since a high-ranking placement generally translates into a lot of site traffic. If you’re an SEO pro who understands Google’s algorithms and the value of keyword frequency and meta descriptions — or you’re willing to learn — you may find your services in demand by a range of different organizations who need help with their SEO content strategy.
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Blogging can be a profitable freelance job. If you are able to build a large following, you may be able to sell advertising space, which can bring in a small revenue stream. You can earn even more through sponsorships and affiliate marketing, which is when brands you believe in pay you for advocating their goods and services. If you don’t want the limelight yourself, you may be able to blog behind the scenes for companies and individuals (like high-profile folks who need a blog but don’t have the time to feed the beast) who may pay you handsomely by the hour or post.
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Copywriters typically create material that encourages consumers to buy goods or services. Copy can be used for advertising, websites, billboards, email campaigns, newsletters and more. As a freelance copywriter, you may find yourself creating catchy taglines for online or print advertisements or composing a unique blog article optimized for the web. Freelance copywriters can work directly with clients or through intermediaries such as agencies or online work exchanges.
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If you’re an ace at organization and love throwing parties for your friends, event planning could be a good fit for your freelance business. An event planner ensures that events, such as parties, weddings, fund-raisers, meetings, and conventions, are planned, organized and executed correctly. The job typically includes scouting out locations, securing any services needed at the event (such as food, transportation, and entertainment), and being on-site the day of the event to make sure everything runs smoothly and everyone has a great time.
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Maybe math is second nature to you, or your grades on essays were always A+. Or perhaps you are a gifted piano player. Whatever your particular talent, there is a good chance that there are folks out there who need some assistance in that area. You can start advertising your tutoring or teaching services through friends, family and neighbors and build out from there.
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If you’re an animal lover, pet-sitting allows you to enjoy pets without the responsibility of ownership. All you typically need to get started is an understanding of how to properly care for dogs and cats (or any other pets that may need your services). For many, this freelance job can be a win-win: You get to build relationships with the animals and get paid for showing some TLC.
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Do you have a talent for crafting or creating handmade goods? It could be quilts, decorative pillows, hand-knit sweaters, jewelry, you name it. If so, you may be able to turn your hobby into a freelance business by advertising your goods on a craft-selling site like Etsy, Handmade at Amazon or ArtFire. In addition to selling online, you may also want to take advantage of opportunities to sell at street fairs, bazaars and festivals.
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If you’re a fast and accurate typist, you may want to consider becoming a freelance transcriber. This kind of work involves listening to an audio recording, such as a webinar, video conference, interview, or speech, and then typing every word that is spoken into a document. There are all kinds of companies that hire freelance transcribers, as well as transcription services that hire individuals to transcribe audio for various clients.
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Once you have your cosmetology license, you typically have a lot of flexibility in terms of when and where you work. Who says you have to be in a salon all day? Many hairstylists and makeup artists work for themselves and offer mobile services, in which they serve clients right in the client’s home. Or you might offer services in your own home. You can also start a hair or makeup blog or post tutorials on YouTube to generate an additional revenue stream.
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When it comes to starting a freelance business, having a good idea is only the beginning. A great next step is to develop a business plan. This involves deciding your company’s purpose, figuring out what service or products you will offer, and setting measurable targets and goals.
In addition, you may want to determine business financing options if you need initial capital to get started and then create a business budget.
It’s also a good idea to choose a business structure (such as a sole proprietorship or limited liability company), get any required licenses or permits, and purchase any equipment and supplies you may need, being sure to keep receipts since these expenses may qualify as self-employed tax deductions.
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There’s much appeal to the freelance life. You get to call the shots and work as much or as little as you like. And turning your marketable skills into your own home-based freelance business may be easier than you think.
One of the biggest challenges you may face is how to fund your business. You may have savings to get you going or have family and friends who will help you launch. If not, you can look into getting a small business loan.
Learn more:
This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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