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Kimberlee Meier
Posted 16 days ago
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The Ultimate Guide to Shopify Inventory Management

For a lot of Shopify store owners, dealing with inventory management can be a logistical nightmare.

The Ultimate Guide to Shopify Inventory Management

As mundane as it can be, inventory management is crucial to the overall success of a Shopify store. According to Shopify’s own stats, dropping the ball on inventory can lead to a loss of customers in a bunch of different ways:

The good news? With a proper inventory management system in place, your business has a better chance of profitability—and survival.

In this ultimate guide, we’re going to explore:

Let’s dive into why an inventory management system is important, and the most popular solutions available for Shopify store owners.

Why you need an inventory management system

Whether you own a brick and mortar store, or an online store through Shopify, the pathway to success is the same. You need to have a target audience, a strong profit margin, and make sure you aren’t holding onto stock that isn’t selling.

Here are just a couple of reasons why having an inventory management system in place can boost your store’s chances of success.

Reason #1: It will give you an insight into your inventory

Having a solid inventory management system in place for your Shopify store can give you a crucial insight into your stock.

For example, does your product line follow the 80/20 rule? Is there a bunch of products in your store that are bringing in the majority of your revenue, while a ton of them sit on the shelf collecting dust?

Without a solid inventory management system in place, it’s hard to know. The software can keep a tab on what products are selling more, so you’re able to recognize what your customers are really looking for in your store.

Reason #2: It will help with budget and cashflow

Inventory turnover is a crucial metric for any business.

Not sure of your inventory turnover? Just divide your sales by your average inventory. Boom, sorted!

Not sure of your inventory turnover? Just divide your sales by your average inventory. Boom, sorted!

If you’ve got too much stock sitting on the shelves, it will suck up your shop’s capital—not to mention precious warehouse space. That’s why it’s essential to have the right amount of stock on hand to avoid this happening.

To hit the inventory sweet spot in your Shopify store, you need to calculate how much product you need to keep on hand, without having too much. In turn, this will help to level out your cash flow (’cause you won’t be ordering 100 boxes of product that aren’t selling as quickly as they need to be, i.e., dead stock).  

Pro-Tip: If you’re in an industry that sells stock with an expiration date (we’re looking at you, food, drink, and cosmetic shop owners!), stock spoilage is the equivalent to throwing money down the drain. Rotating stock and ensuring a smooth inventory turnover is crucial to your store’s chances at success.

What every sound inventory management system should have

Before you dive in and buy the first inventory management solution you see, you should make sure it ticks a few operational boxes.

Here are the main tools any decent inventory management system should be able to offer your store.

1. It should integrate with the rest of your store

The ideal inventory management system will automatically route orders to your fulfillment centers and update your inventory levels in real time. And it should do this across all your selling channels—which is super important if you’re selling on other platforms like Amazon.

Make sure the platform plays along with all of your existing apps and integrates well. The less learning curve, the better.

2. It should have sales forecast capabilities

Inventory management software should act as a crystal ball into your store’s future sales and product demands.

Yes, there are variables involved. But the software should be able to give you a ball-park projection for:

    Market trends
  • Your sales from the same week or month in the previous year
  • Any definite transactions (think subscriptions, contracts, etc.)
  • Your growth rate for the year so far
  • Seasonality predictions
  • Your upcoming advertisement spend (should you cut it down or increase it? A projection can help you decide)
  • Any upcoming promotions or sales your store has planned

By having this data on hand, you’ll then be able to nail down an Economic Order Quantity (EOQ) to keep your stock levels in check (while keeping your customer’s orders filled).

TradeGecko has a foolproof formula to quickly calculate your EOQ (but your inventory management system should do this for you automatically).

3. It should have a POS integration

If you’re selling stock in a brick and mortar shop alongside your online store, a POS integration for your inventory management system is essential.

Shopify has recently launched its own POS system, but even if you are using another method, make sure it’s able to integrate.

That way, a sale from your shop will automatically update your online store, so your customers aren’t placing an order for a product that you can no longer fulfill.

Hacks to get the most out of your Shopify inventory management system

The best part of having an inventory management system is the hacks. The system should work for you and make your life easier—not harder.

Hack #1: Set par levels

Your inventory management software will give you the option to set product par levels, so utilize it.

A par level is the minimum amount of each product you want to have on hand, and when your stock drops below this, you’ll get an automatic alert to re-order.

Once these levels are set up, it will be easier (and quicker) to know how much stock to order to get you back above par.

Bonus: If you’ve got staff who help with ordering stock, correct par levels are a lifesaver. It can give them a guideline on how much to order, and take the stress away from you that they’re blowing budgets on ordering/keeping too much stock.

Hack #2: First-In-First-Out (stock rotation)

First-in-first-out is a fancy way of saying stock rotation. Once par levels are set up, you should have a manageable amount of stock on hand, which will make stock rotation easier for you and your staff.

Stock rotation isn’t just for stores with perishable items, either.

It should be done on every piece of stock your store is selling. This will ensure packaging stays up to date and doesn’t get damaged. The last thing you want is to be selling products to customers that are out-of-date, either with old packaging or worse, stock that’s already perished.

Hack #3: Manage relationships

Maintaining manageable stock levels can be challenging when suppliers have ridiculously high minimum order quantities.

However, maintaining and nurturing product supplier relationships can be a gamechanger for your inventory levels. A lot of suppliers that have large minimum order quantities are also open to negotiating them.

An example of an Alibaba stockist that has a large minimum order quantity, but have also indicated they’re open to negotiating.

The hack here is just to be upfront with your suppliers. If you want a lower minimum order, negotiate and ask them.

Hack #4: Contingency planning

For a Shopify store owner, there are few things worse than hearing feedback from your customers like “what do you MEAN the product is out of stock?! It was in-stock when I ordered it!!”

*Then goes and leaves a vicious review about your store on every online platform they can get their hands on.

The secret to avoiding these situations is contingency planning. You know, planning for the worst, but hoping for the best.

You’re going to come across situations you can’t control in your store like:

  • An unexpected spike in a product’s popularity that leaves you out of stock
  • Your warehouse capabilities. If it is only capable of holding small amounts of stock, it’s hard to stock up for seasons or trends
  • A manufacturer who can’t keep up with demand so they put you on a product waitlist (or worse, they stop making it all together)
  • Miscalculating your cash flow. This can leave you high and dry and without the capital you need to re-order stock

Don’t think your store will escape these problems—it won’t. That’s why you need to have a plan in place to make sure you survive them while keeping your customers sweet.

Pro-Tip: Check out this contingency plan guide and use it to build your own strategy into your inventory management platform (before, not after, the problems hit).

Hack #5: Give your products a priority tag

Remember the 80/20 rule we talked about earlier? Cool, use it to delegate your most popular products with value tags in your inventory system.

After a short while using inventory management software, you should be able to break your products down into three core categories.

Once products are tagged correctly, it will be easier to allocate your ordering budget when you’re re-ordering.

It doesn’t make sense to buy 10 high-value products worth $1,000 each that aren’t selling well when you could use that cash flow to diversify product orders across low-value and medium-value products.

The most popular systems for managing Shopify inventories

Now that you know why you need to be utilizing inventory management in your Shopify, it’s time to choose the right software for your store.

Here are three of the most popular solutions available on the market.

TradeGecko

TradeGecko is arguably the most popular inventory management software amongst Shopify store owners around the globe.

The software offers a ton of features. You can integrate it with your accounting software (if you’re using QuickBooks Online or Xero) and automate order routing, which is vital for keeping stock numbers up to date.

If you’ve got team members on the floor in a warehouse, you can use TradeGecko’s app to receive stock, take stock, pick, pack, and ship with a barcode scanner. Plus, it’s built for Shopify owners that are selling across multiple channels. The software will allow you to keep track of orders across channels like Amazon, eBay, Etsy, The Iconic, Walmart marketplace, Wayfair, and Joor, and more.

Price: Starts at $39/month

Stock Sync

Are you currently managing your inventory on a spreadsheet?

If so, Stock Sync will be a more suitable solution for your store. Inventory management doesn’t require you to re-invent the wheel, it just requires you to be organized.

Stock Sync gives Shopify store owners the tools to manage inventory out of Google Drive, Dropbox, email, and FTP through a slew of different formats, including:

  • CSV
  • XML
  • XLS
  • XLSX
  • EDI
  • TXT
  • HTML
  • JSON
  • Walmart file feed

It works by automatically syncing your stock from your spreadsheet to your Shopify store. You have the option to decide if inventory is synced hourly or daily, and you can manage multiple suppliers and dropshippers from the app’s dashboard.

Price: Free to start out, then pro features start at $5/month

Zoho Inventory

Zoho Inventory is a great inventory management solution if you’re looking to control a customer’s end-to-end experience in one platform.

You can create product bundles and control your entire shopping process from the tool’s dashboard. It has more than 30 shipping integrations that will allow you to fulfill orders from your international customers quickly. And because it’s paired up with AfterShip, you’ll also be able to send live notifications to your customers about their order—from dispatch to arrival.

Bonus: If you’re using Shopify plus or Shopify POS (or both), you can integrate them into the platform without having to create an additional account.

Price: Free to start out, then starting at $40/month

Inventory Management Can Make or Break Your Store’s Success

Let’s cut to the chase. Inventory management won’t be the most enjoyable part of your Shopify journey.

It requires monitoring stock, inputting quantities, and forecasting sales. Miscalculating stock numbers or failing to have a contingency plan in place for your inventory can be disastrous for your store, especially if you’re just starting out.

Nearly 45% of all lost customers using Shopify stores are lost due to items being out of stock after they placed their order. Not managing your inventory can destroy your reputation, and almost ensures a customer will never revisit your store.

But as labor-intensive as inventory management is, Shopify store owners have one thing in their favor: software. Leverage the tools out there available for your store and use them to manage your inventory levels automatically.

Your customers will thank you for it—and so will your bottom line.  

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Kimberlee Meier
Kimberlee Meier

Kimberlee Meier is a B2B/SaaS Content Writer who helps start-ups fuel their growth through quality, evergreen content. Her workshop is located at kimberleemeier.com.

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