Picture this.
Business is going good. Your Amazon store is hitting off, the products are well ranked and optimized, the sales are flooding in, and the inventory… Wait!
The realization dawns upon you; your inventory is about to run out of juice.
You rush to your supplier and place an order. It’s too late though. By the time the next shipment will arrive, your inventory will be zero, and your sales are likely to diminish. However, you must order anyway.
So, you decide to go with a bigger order this time to avoid repeating the same situation all over again. But now your sales velocity isn’t enough, and you're burdened with an unwanted storage fee.
This is every seller's worst nightmare. No one likes to miss out on sales and profit because of inventory problems. That’s where sales forecasting and inventory planning come into play. They help you make better decisions for your business and reduce risks.
We’ve established that sales forecasting and inventory planning are essential for a successful business. Now, how does one carry them out?
In this blog, you’ll discover just that. We’ll discuss the importance of these processes, why Amazon gives inventory planning significance, how to do it, plus some tips.
Why focus on sales forecasting and inventory planning?
When you estimate the sales and plan your inventory beforehand, you can calculate your future costs, which helps you budget better and reduce risks. Once you've got budgeting and risk management out of the way, managing the cash flow becomes easier, and you’re able to make better business decisions moving forward.
When you make better business decisions, your Amazon store grows faster. There’s an increase in your profitability and marketing performance, and the workload significantly decreases.
But what happens if you aren’t careful with your inventory planning?
Your product may go out of stock unexpectedly, and you may lose sales. Unfortunately, for Amazon sellers though, that’s not where it ends. Things can go further south.
Amazon strives to give the best experience to their customers. And thus, it does not want to disappoint them by displaying products that are not in stock. That’s why when you go OOS, your seller account is flagged, and the Amazon algorithms do not give much preference to your listing in fulfillment centers, Buy Box, and search.
When your listing is not ranking well, sales opportunities become limited. Not getting enough clicks and conversions, results in further de-prioritization by the algorithms, and you get even fewer sales.
To sum it all up, you end up in a vicious cycle that takes a lot of work to come out of.
But why does Amazon place such huge importance on inventory planning?
Amazon’s fast shipping and easy return policy are among the many reasons the marketplace is so popular.
However, storing all the products, moving them from one area to another within the fulfillment centers (sometimes even across the country), and delivering them to customers on time and in one piece - all these functions take a lot of resources and money. Keeping the supply chain operations smooth is Amazon’s single largest expense.
However, it’s not just about the expenses. Almost all of Amazon’s operations are dependent on its supply chain. Efficiency has a role too.
Now that we’ve got that cleared, it’s time for the big question:
What does it take to get the inventory planning right?
The answer: Accurate sales forecasting!
How to do sales forecasting for Amazon?
What is sales forecasting?
Simply put, sales forecasting is the practice of using data and analytics to estimate the sales volume and revenue for your product.
To start off with the calculations, you need data. What types of data?
- Inputs
As the name implies, it is everything you’re ‘putting in’ or giving to the system. This type of data includes factors that are in your control. For instance, the different products you plan to sell, the number of items you’re going to put in the fulfillment center, what price you’ll sell it at, and more.
Some important metrics in this category are your product’s average sales price, buy box win rates, covered days for inventory, and listing quality score.
- Outputs
Outputs are all those metrics that tell how the market or your audience is responding to your inputs. Some example metrics include pageviews, unit sales, reviews, and product ratings.
- Competitive landscape data
This entails the data obtained from market competitive analysis. Examples include product rank, organic rank, whether your listing is in the key ranking thresholds (top 3, 10, or 100), keyword performance, and more.
You can find all this data inside Seller Central, on the Amazon marketplace, or via trend analyzing websites. In order to make accurate sales predictions, you need to holistically look at the input, output, and competitive landscape data.
Once you have collected the information, you then need to estimate your sales forecast and plan your inventory based on the findings.
This begs an important question:
What are your options to analyze the sales forecast data?
There are several ways to analyze the sales forecast data.
- Manually: You can manually gather and analyze the data using excel spreadsheets. This method is best if you sell in small quantities or have just started out on Amazon. It’s cheap, and all it requires is a laptop and familiarity working with spreadsheets.
However, manually analyzing data sets can be inaccurate, unnecessarily time-consuming, and ineffective.
- Build an in-house automation solution: This solution is meant for large-scale businesses with a huge turnover. Using your desired metrics, you can build your very own sales forecasting software.
This method is very expensive and may require ongoing maintenance and a high level of expertise that many companies do not have.
- Third party automation software solutions like ZonGuru: If you want to get reliable data without sacrificing convenience or spending loads on in-house software deployments, then third party solutions are the best choice. They are cost effective, accurate, and provide easy integration.
For example, My Products from ZonGuru is an advanced tool that allows you to track your inventory, get alerts when to restock based on your lead times, and identify and monitor your best performing SKUs so you can forecast sales and plan your inventory better.
Sales forecasting is only half part of the equation though. You still need to do inventory planning.
Principles of Amazon inventory planning
The next step after estimating sales is using those estimates to plan how much inventory you need to get in, and by when. Here are some basic principles to follow for Amazon inventory planning:
- If you’re sourcing from China or other overseas countries, always keep a grace period of 6-8 weeks so you can protect yourself from unexpected complications and delays.
- Don’t be too optimistic. Only order inventory as is needed without going overboard. If you don’t get as many sales as needed, storage management, warehouse fees, etc., can then become a big hassle.
- If possible, try to maintain weekly shipments to the fulfillment centers. That way, you can do sales forecasts more accurately and adjust your WOC (week of cover) goals much more efficiently.
- SKU level optimization is crucial. Don’t focus on all the products as they’re not equal. Give each SKU the time it deserves. Follow the 80-20 rule, which implies that 80% of your revenue is driven by 20% of your SKUs. Therefore, identify your well running products and prioritize those hero SKUs.
Frequently Asked Questions
How to plan inventory for the very first shipment for a new product?
Collecting output data is not necessary (or not possible in most cases) for the first shipment. So focus on your competitors and market trends. Remember; estimate low, not high - even if you are extremely sure that your product is going to do well.
Once you have customers interacting with your product, extract the output data, and use the metrics to set goals and align your future shipments accordingly.
How to do inventory planning for the holiday period?
If your product has a lower storage fee, then the best bet is to send your inventory ahead of time and overstock it before Amazon shuts down the allocations. Alternatively, you can bring the inventory, store it in third party logistics warehouses, and then send them to Amazon in batches.
Overall, the best advice is to stick to the principles discussed in the Principles of Inventory Amazon planning section. Amazon will observe your account’s positive metrics and give you the allocation you deserve.
Conclusion
So we discussed the importance of sales forecasting and inventory planning today. The types of data you need to forecast sales, the principles to keep in mind when planning your inventory, and we also addressed some commonly asked questions along the way.
We hope you are now confident in your ability to forecast sales and plan your Amazon inventory. Now go out there and kill it!
