![]() fruits, candies and other food) or you have a long inventory turnover, you should use the FIFO method. Also, if you sell perishable products like (eg. Products of this category become outdated quite quickly. For instance, it refers to fashion and tech products. The FIFO method is best for products that are losing their value over time. Inventory valuation methods: how it affects the businessįIFO (First In First Out) It assumes that the first goods purchased are the first ones applied to Cost of Goods Sold. Depending on your choice, you may end up with a different net profit. Inventory Planner, Zoho )ģ) Problem: Like any other product-based business you will face the problem of choosing a suitable inventory valuation method. Also, there are plenty of specialized inventory management software (eg. The most beautiful thing about them is that you can connect your Amazon seller account or Shopify store with them (check A2X, Weava). Solution: You should have an accounting software in place (like Xero or Quickbooks). Without complete visibility on each step of your inventory cycle (interaction with the supplier/manufacturer, warehouses, customers ) you can’t make business decisions. ![]() Your goal is to determine the lowest possible inventory amount you can have in order to meet demand and avoid delays in fulfillment.Ģ) Problem: Losing visibility of different sales channelsĪt some point, it becomes harder to keep track of all sales and orders (especially if you are using multiple sales channels). For this purpose, Google Trends tool could help you determine seasonality. If you have an problem overselling you should investigate the product’s demand more closely. Should you diversify or change your sources of supply?.Should you change your pricing strategy to boost your sales (speed up inventory turnover)?.Once you know your gross profit and what you have in the warehouse, you can review your strategy: You already know how to do it, but you can also rely on a professional bookkeeper. Solution: First of all, make sure that you can determine an accurate cost of sales and inventory balance. On the other hand, if you run out of stock and can’t fulfill customers’ orders, bad reviews could quickly damage your business. Consequently, you pay too much for storing inventory that you don’t actually need right now. Overstocking means that you have too many products that you can’t sell as fast as you wish. Here is a diagram showing the inventory cycle:Ĭhallenges of inventory management in e-commerce (+ possible solutions)īoth scenarios are undesirable. By keeping track of your costs of goods sold, you can identify areas of opportunities for improvement and growth.ĬOGS and Inventory accounting always go side by side. Also it’s worth reviewing your listings and remove unpopular products from time to time. Other miscellaneous expenses associated with receiving your goodsĮvery business is keen to reduce COGS: you should try to find a good supplier with the lowest prices.Shipment: how much did it cost to receive the product to your warehouse(s).If you’re an online seller, besides costs, you pay your suppliers for the products you sell. You won’t be able to estimate how many products are available for sale or what your profit is. Otherwise, you might face great troubles. Cost of Sales and Inventory in E-commerce: Why Does it Matter?Īs a rule of thumb, inventory balances and COGS should be correctly recorded in your accounting system.
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