Efficient inventory turnover is the key to improving cash flow in eCommerce. Unsold products tie up money that could be used for growth. Here’s how to fix that:
- Track Inventory Turnover Rate: Calculate how often you sell and restock inventory. Aim for a balance - too low means slow sales; too high might mean stock shortages.
- Use Data to Predict Demand: Analyze past sales trends to avoid overstocking or running out of stock.
- Smart Stock Management: Use just-in-time ordering, clear unsold items with discounts or bundles, and focus on best-sellers.
- Buy Strategically: Match orders to sales forecasts and negotiate better supplier terms (e.g., bulk discounts or flexible payment terms).
- Leverage Software: Use tools with features like real-time tracking, automated reordering, and demand forecasting.
- Plan for Seasonal Changes: Stock up before peak seasons and clear out seasonal items quickly after.
- Get Flexible Funding: Use revenue-based financing to maintain inventory without straining cash flow.
These strategies ensure you have the right products at the right time while keeping your cash flow healthy.
How Does Inventory Affect Cash Flow ...
1. Calculate Your Inventory Turnover Rate
Your inventory turnover rate shows how quickly you sell and restock items, which directly affects your cash flow.
How to Calculate Inventory Turnover
Use this formula to find your inventory turnover rate:
Inventory Turnover Rate = Cost of Goods Sold (COGS) ÷ Average Inventory Value
Example: If your yearly COGS is $500,000 and your average inventory value is $100,000, your turnover rate is 5. This means you completely sell and replace your inventory five times a year.
To calculate average inventory:
Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
Example: If your beginning inventory is $120,000 and your ending inventory is $80,000, your average inventory is:
($120,000 + $80,000) ÷ 2 = $100,000
A higher turnover rate generally means you're efficiently turning inventory into revenue, which helps cash flow. But if the rate is too high, it might mean you're not stocking enough to meet customer demand.
Check Against Industry Standards
Turnover rates can vary based on your eCommerce niche. Look up benchmarks for your product category to see how your rate compares. If your rate is lower than the industry average, you might need to tweak your inventory strategy. This could include adjusting order sizes or managing seasonal stock more effectively to improve cash flow.
Improving your turnover might also involve better stock management or exploring financing options that match your sales cycle.
2. Use Data to Predict Stock Needs
Using historical sales data and market trends can help you make smarter inventory decisions while keeping cash flow in check. By spotting patterns and using effective tools, you can avoid overstocking or running out of essential items.
Track Sales Patterns
Dive into past sales data to plan your inventory effectively. Focus on these key metrics:
- Sales velocity: Measure how quickly specific products sell over time.
- Seasonal trends: Watch for monthly or quarterly sales changes.
- Stock-out frequency: Identify which products frequently run out.
- Dead stock: Pinpoint items that remain unsold for long periods.
For better forecasting, analyze at least 12 months of sales data to account for seasonal shifts. Key areas to review include:
- Weekly sales trends: Many eCommerce businesses see spikes on weekends.
- Holiday effects: Track how major shopping events impact inventory needs.
- Product life cycles: Understand how long items typically stay in stock.
- Market shifts: Consider external factors like competitor strategies or industry developments.
Use these insights to guide your inventory planning, and pair them with tools that simplify stock management.
Pick the Right Stock Management Tools
Once you’ve identified sales trends, the right software can make inventory planning easier and more accurate. Inventory management tools can automate demand forecasting and help prevent costly mistakes. Look for features like:
| Feature | Benefit to Cash Flow |
|---|---|
| Real-time tracking | Helps avoid overstock and stockouts with live updates. |
| Automated reorder points | Ensures you maintain optimal stock levels effortlessly. |
| Demand forecasting | Uses AI to predict future needs based on past data. |
| Multi-channel integration | Syncs inventory across all sales platforms. |
| Supplier management | Tracks lead times and order minimums for better purchasing. |
Choose software that works seamlessly with your eCommerce platform and provides clear reports. This will help you:
- Lower holding costs by keeping just the right amount of stock.
- Avoid stockouts, which could harm your seller ratings.
- Improve reorder timing by factoring in supplier lead times.
- Track inventory expenses more accurately for better financial planning.
3. Set Up Smart Stock Management
Efficient stock management helps cut storage costs and ensures your products are always available when customers need them.
Order Stock When Needed
Use just-in-time (JIT) ordering to minimize storage costs and keep more cash on hand.
| Stock Level | Action Required | Cash Flow Impact |
|---|---|---|
| Below 25% | Place rush order | Short-term cash investment |
| 25-50% | Schedule regular reorder | Balanced cash allocation |
| 50-75% | Monitor sales velocity | Maintain current levels |
| Above 75% | Hold new orders | Preserve cash reserves |
Keep a close eye on supplier lead times to avoid running out of stock. Aim to maintain a 30-day supply for steady-selling items, adjusting based on sales trends. Make sure your reorder points take into account supplier processing times, shipping durations, safety stock, and seasonal demand.
Clear Out Old Stock
Move unsold items that have been sitting for 90 days or longer:
- Progressive Discounting: Start with a 10-15% discount and increase it every two weeks until the items sell. Keep an eye on your profit margins to ensure you're not losing too much.
- Strategic Bundles: Combine slower-moving items with popular products to make them more appealing. For example, bundle seasonal products with year-round bestsellers and offer a 20-25% discount on the package.
- Liquidation Options: If items still haven't sold after 180 days, consider selling them to liquidation buyers. This can help you recover at least 40-50% of your initial investment.
Once you've cleared out old stock, shift your focus to your best-performing products.
Stock What Sells Best
Apply the 80/20 rule: concentrate on the top 20% of products that generate 80% of your revenue. Here's how to identify and manage your best-sellers:
| Metric | Target Range | Action |
|---|---|---|
| Profit Margin | Over 40% | Increase stock levels |
| Sales Velocity | Over 10 units/week | Maintain higher inventory |
| Storage Cost | Less than 15% of value | Review storage options |
| Turnover Rate | Over 12x annually | Prioritize restocking |
Track these metrics monthly and adjust stock levels as needed. Keep more of high-margin, fast-selling products while reducing investment in slower-moving ones.
For better cash flow:
- Stock 60-90 days of inventory for top sellers.
- Keep 30-45 days of inventory for medium performers.
- Limit slow movers to 15-30 days of stock.
- Remove items that haven’t sold in 180 days to free up space and capital.
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4. Buy Stock More Efficiently
Match Orders to Sales Forecasts
The key to smarter purchasing lies in accurate sales forecasting. Use past sales data and anticipated demand to determine how much inventory to order. Here’s a quick guide to aligning orders with expected demand:
| Sales Period | Order Strategy | Cash Flow Advantage |
|---|---|---|
| Peak Season | Order 120% of forecast | Maximize sales opportunities |
| Regular Season | Match forecast exactly | Keep cash flow steady |
| Off Season | Order 80% of forecast | Conserve working capital |
| New Products | Start with minimum order | Test market demand |
Keep an eye on your cash conversion cycle - aim to keep it under 60 days so your inventory quickly turns into revenue.
Once your order quantities are in sync with forecasts, take it a step further by negotiating supplier terms to improve cash flow.
Get Better Supplier Deals
Securing better supplier terms can make a big difference in your bottom line. Focus on negotiating payment terms and volume discounts to maintain stock levels without straining cash flow:
| Negotiation Strategy | Typical Savings | Tips for Implementation |
|---|---|---|
| Bulk Purchase Agreements | 15-25% discount | Commit to 6-month supply contracts |
| Early Payment Terms | 2-5% discount | Pay invoices within 10 days |
| Split Delivery Options | 5-10% savings on storage | Schedule stock deliveries in intervals |
| Seasonal Pre-orders | 20-30% discount | Place orders 3-4 months in advance |
To strengthen your negotiating position:
- Combine Orders: Bundle multiple purchases, like regular restocks and seasonal pre-orders, to qualify for larger discounts.
- Use Payment History: Highlight your consistent payment record to negotiate extended terms, such as moving from net-30 to net-60.
- Build Relationships: Partner with suppliers offering vendor-managed inventory (VMI) programs, where they track your sales data and replenish stock as needed.
If you’re a growing business and need extra funding to build inventory, revenue-based financing from Onramp Funds can help. This option allows you to stock up when necessary and repay as a percentage of your sales, keeping cash flow manageable as you scale.
5. Use Software to Track Inventory
Must-Have Software Features
Modern inventory management benefits greatly from the right software tools. Here are some key features that can help improve cash flow:
| Feature | Purpose | Impact on Cash Flow |
|---|---|---|
| Real-time Sync | Automatically updates stock levels across channels | Avoids overselling and stock shortages |
| Sales Analytics | Analyzes past sales and predicts future demand | Guides smarter purchasing decisions |
| Low Stock Alerts | Sends notifications when inventory is running low | Ensures you reorder at the right time |
| Multi-channel Integration | Links platforms like Amazon, Shopify, and Walmart | Simplifies inventory management |
| Automated Reordering | Creates purchase orders based on set rules | Minimizes manual effort and errors |
These features not only simplify managing inventory but also help maintain a healthy cash flow.
How Software Helps Cash Flow
The benefits of inventory software go beyond just tracking. These tools can directly affect your cash flow by offering actionable insights:
- Real-time Monitoring: Keep an eye on stock levels to avoid overstocking or tying up too much cash in inventory.
- Better Decision Making: Advanced analytics allow for quicker, data-driven decisions.
- Cash Flow Planning: Use integrated data to predict inventory needs and align purchasing with expected revenue.
6. Manage Seasonal Stock Changes
Seasonal inventory management has a direct effect on cash flow. Careful planning can help you avoid running out of stock during busy times and overstocking during slower periods. Building on earlier inventory management strategies, let’s dive into how to handle seasonal stock shifts effectively.
Prepare for Peak Sales
- Analyze past sales data 3-4 months before your busy season to predict demand and budget accordingly.
- Place initial orders in phases to align with expected sales patterns.
- Match your marketing efforts with inventory levels to avoid overspending on promotions.
- Track early sales trends to adjust stock levels as needed.
- Keep a safety stock on hand to handle unexpected demand surges without stretching your cash flow too thin.
Using tools like sales velocity and trend analysis can help you strike the right balance - keeping enough stock on hand while managing working capital wisely. After the peak season ends, the focus should shift to converting unsold inventory into cash quickly.
Sell Remaining Seasonal Items
- Start with small markdowns to protect your profit margins.
- Bundle seasonal products with popular items to move stock faster.
- Gradually increase discounts to clear out inventory more quickly.
- Weigh the cost of storing items against their future sales potential to decide when to start clearance sales.
These steps can help you turn leftover seasonal inventory into cash efficiently, ensuring your business stays financially stable and ready for the next round of stock investments.
7. Get Funding for Inventory
Balancing inventory management with cash flow can be tough for eCommerce sellers. Securing the right funding allows you to stock up without draining your cash reserves.
Sales-Based Repayment Options
Revenue-based financing is a smart way to fund inventory purchases because repayments are tied to your actual sales. This means you won’t be stuck with fixed payments during slow periods. With Onramp Funds, repayments automatically adjust based on your revenue, helping you keep your cash flow steady.
Here’s why this option works well:
- Fast access to funds: Receive funding within 24 hours
- Repayments that match sales: Payments scale with your revenue
- No loss of ownership: Keep full control of your business
- Simple qualification: Open to businesses making $3,000 or more in monthly sales
This repayment flexibility not only eases financial pressure but also helps you grow your inventory over time.
Expand Your Inventory Strategically
With funding secured, you can grow your inventory to drive business growth. Research shows that eCommerce businesses see about 60% revenue growth within six months of getting inventory funding. Here’s how funding helps:
- Stock up during busy seasons without straining your budget
- Take advantage of bulk discounts from suppliers
- Add new products to meet customer demand
- Keep inventory levels balanced across all sales channels
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great." - Jeremy, Founder and Owner of Kindfolk Yoga
Flexible Use of Funds
You can use this type of funding for a variety of business needs:
| Purpose | Impact on Cash Flow |
|---|---|
| Inventory Purchase | Keep stock levels up without tying up capital |
| Shipping & Logistics | Cover fulfillment costs until sales come in |
| Marketing Investment | Boost growth while managing cash flow |
| Seasonal Preparation | Prepare for busy periods without draining funds |
Align your funding strategy with your sales cycles to stay stocked and ready when demand spikes. This ensures you can meet customer needs while keeping your cash flow healthy.
Conclusion: Better Stock Management Equals Better Cash Flow
Effective inventory management plays a key role in maintaining healthy cash flow. Businesses using revenue-based financing reported a 60% revenue boost within 180 days. Nick James, CEO of Rockless Table, shared his experience:
"Applied, got our offer, and had cash in our bank account within 24 hours. Their Austin, TX-based team was very professional and helped me deploy the cash to grow our business."
To achieve success, focus on these key practices:
- Monitor your inventory turnover rate consistently
- Use data to guide stocking decisions
- Streamline stock management processes
- Take advantage of technology for inventory tracking
- Prepare for seasonal demand shifts in advance
Combining these practices with smart financing options can help keep cash flow steady.
You don't have to let inventory management drain your cash reserves. Flexible financing solutions can help you maintain the right stock levels without compromising cash flow. Torrie V., Founder and Owner of Torrie's Natural, highlights this benefit:
"Onramp has simplified cash flow by automating everything: easy to request, set it and forget it payments - quick and fast!"
