Sales and inventory forecasting is an important part of selling on Amazon. Your goal is to sell as much as possible. As an FBA seller, you can only sell as much inventory as you have in Amazon’s fulfillment warehouses. If you sell more products than you have in stock, customers will have a bad experience. That is the cardinal sin of selling on Amazon. If you don’t sell enough inventory, you’ll accumulate storage fees that will eat into your margin. Sales and inventory forecasting is about finding the happy medium.
Inventory and the Amazon Flywheel
Sales and inventory forecasting impacts many parts of your Amazon business. To understand how, first consider the Amazon Flywheel. Jeff Bezos once scribbled a diagram onto a napkin that would define the company’s business model. He called it the “virtuous cycle” – a core approach that focuses on customer experience.
Bezos’ original sketch depicts a flywheel (a rotating disc that uses kinetic energy to keep moving). Amazon’s business model propels itself on the same principle. Each part feeds momentum into another part, which improves the entire wheel’s efficiency. This enables the business to grow, expand, and improve with its own inertia.
Selling on Amazon is also like powering a flywheel. The more sales you generate, the more organic rank you achieve. The higher you rank, the less you pay for Amazon Advertising. The more you rank for target keywords, the more reviews you’ll accumulate from sales. More reviews will lead to even more sales, and on and on.
Keeping the flywheel turning is the secret to growing a successful Amazon business. One thing that can bring this momentum to a screeching halt is lack of inventory. The flywheel depends on having inventory to meet demand. If you run out – even for short period – it will take time to rebuild the momentum. This translates to lost revenue.
Amazon Inventory Performance Index
Amazon’s Inventory Performance Index (IPI) is a metric to gauge your inventory performance over time. Amazon wants your items in their warehouses to sell fast. Sellers with low IPI scores often incur storage restrictions and higher fees. The following tips will help keep your IPI score in good standing:
- Maintain a balanced inventory level between sold and on-hand inventory
- Avoid long-term storage fees
- Fix listing problems
- Keep your most popular products at the right inventory levels to meet demand
The Manage Inventory Health Page on Seller Central
The Manage Inventory Health page makes it easy to manage your excess and aged inventory. This page can also help you optimize your inventory, reduce costs, and improve your IPI score. Key benefits of the Manage Inventory Health page include the following:
- Avoid aged inventory and reduce storage costs. Amazon recommends maintaining enough inventory to cover 30 to 60 days of your expected sales. FBA sell-through is a good metric to help you maintain this level of cover. Aim to maintain at least a 2.0+ sell-through on your products.
- Optimize within your storage limits. Add the Storage volume metric to your page from Table preferences. This will allow you to sort by your largest-volume products. Filter your products by Storage type and identify the products that have the highest number of excess units (or lowest sell-through rate).
- Optimize within your restock limits. Filter your products by Storage type. Then sort your products by largest excess-unit quantity or lowest sell-through rate. Now you can take action on those products to optimize your inventory within your restock limits.
Third-Party Amazon Sales and Inventory Forecasting Tools
As your Amazon business grows, sales and inventory planning can get complicated. The more products you have, the more inventory there is to manage. Many sellers use a third-party inventory management software. There are many available, so always do your research. Some focus only on forecasting and/or analytics, while others provide turnkey inventory management services. It is important to choose one that fits your brand’s particular needs.
Channel Key Takeaway
To sell on Amazon FBA, you need the right amount of inventory in stock. This requires effective sales and inventory planning. If you don’t have enough, you can’t fulfil orders. It won’t be long before Amazon penalizes you for providing a negative customer experience. If you have too much inventory in FBA, your IPI score can suffer. This will increase storage fees, which will lower your margin. Managing your inventory takes work, but it is a critical part of selling on Amazon. These principles and strategies will help you provide a good customer experience and maximize profit.