How much inventory should I have on hand for my ecommerce business?
The amount of inventory that you should have on hand for your ecommerce business depends on a number of factors including:
- How long will it take you to replenish your inventory from your suppliers? If it takes months to replenish your inventory, you will want to have more inventory on hand. If you can replenish inventory quickly, then it is likely not a good way to tie up your cash to hold onto inventory yourself.
- How much space does your inventory take? If your inventory takes up a lot of warehouse space that you are paying for, you will want to minimize your inventory on hand.
- What kind of discounts can you get for buying inventory in bulk? If you are able to secure substantial discounts for ordering inventory in bulk, and if you are confident that you will be able to sell that inventory eventually, it may make sense to order larger quantities of inventory.
- Do your cash flow projections support your projected inventory levels? The most important question is whether your cash flow can handle you holding on to substantial amounts of inventory. You don’t want to go bankrupt because all of your cash is tied up in inventory and you can’t meet your obligations.
Should I use a 3rd party logistics company for my ecommerce business?
This really depends on what your competitive advantage is in your ecommerce business. Some ecommerce businesses specialize in the logistics side of the business and don’t really care what products they are selling. Some ecommerce businesses are focused on the product and are not experts in logistics. If your competitive advantage is having the best quality product at your price point, then I would suggest focusing on the product and hiring a 3rd party logistics company to specialize in the pick, pack, and ship functions of your business.
How much should I pay for inventory when acquiring an ecommerce business?
When you are acquiring an ecommerce business you don’t want to overpay for inventory in the acquisition. If the business has a lot of inventory it can be difficult to know whether some of that inventory is obsolete or simply not selling. This is especially difficult if the company does not have a strong inventory management system. The thing you want to keep in mind is that the typical ecommerce business has 40% gross profit margins, so if you are selling items for $100, you would not want to pay more than $60 per unit for that inventory in the acquisition. I would also suggest that you pay no more than what the company you are buying paid for the inventory in the first place.