Managing Your Inventory Levels

Once you find a source for merchandise, you now have the challenge of managing your newfound inventory. That means determining how much to buy and when to reorder.

Ordering the Right Quantity

Establishing how much merchandise to order is tough, especially when you're first starting out. The problem is amplified when a supplier requires you to order large quantities of an item, or if you need to order a large quantity to qualify for a larger discount. It's tempting to shoot the moon to get the best possible price, but that's sometimes a dangerous strategy. It's also problematic if your storage space is at a premium; you certainly don't want to order more stuff than you have room for!

The best strategy is to research similar auctions on eBay, as discussed in Chapter 2, "Researching Your Business Model," and make an educated guess as to how many items you can sell in a typical week. Multiply that number by four and round off a little to come up with a conservative estimate of your first month's sales. That's because when you're first starting out, keeping a month's worth of inventory on hand is a safe way to go. If your guess is off by 50% either way, you're still okay; you'll either have two weeks' or two months' worth of inventory on hand, either of which you can comfortably handle. If, on the other hand, you order two months' worth of inventory and you're off by 50%, you're either out of stock in a week or stuck with four months' worth of stuffneither of which is terribly desirable.

Note

When you're dealing with a commodity product for resale, it's better to order too few than too many. If your business is an overnight success, you can always order more.

In addition, when you place an order for a large quantity of merchandise, you need to make sure that there is a sufficient long-term demand for that product. Fads and fashions change over time. Don't order six months' worth of inventory if the current fad looks to burn itself out in three. It may be more prudent to pay a higher per-item price for a lower quantity than risk not selling a substantial portion of a larger-quantity order. (And rememberyou have to store all those items somewhere.)

And it's worth repeating that when it comes to ordering inventory, you shouldn't bite off more than you can chew. Paying a higher price for a smaller quantity is better than getting stuck with a garage full of unsold merchandise!

Managing Your Reorders

Note

Don't wait until your inventory drops to zero to reorderyou'll be stuck with nothing to sell, and no income coming in. Better to reorder before you run out so that your auctions can continue uninterrupted.

Once you start selling, you need to keep track of how much inventory you have on hand. That's where your inventory management system (see Chapter 6, "Setting Up a Recordkeeping System") comes into play. You have to subtract every item you sell from the quantity you initially had on hand. When your inventory drops to a specified level, it's time to reorder more. Of course, this situation poses two questions: At what level should you set your reorder point, and what quantity should you reorder?

To the first question, your reorder point should be based on how long it takes you to receive any order you place from your supplier. For example, if your supplier ships within a week of your order, you can safely set your reorder point at a week's worth of inventory. Let's say you're selling 20 units per week, and your supplier reliably ships within a week of your order. Set your system to alert you when your inventory drops to 20 units. Place your reorder immediately, and you'll have your new stock arrive just as the last of your old stock runs out.

Note

When you're factoring the cost of your merchandise, don't forget to include warehousing costs. This might be zero if everything fits in your garage (and you don't mind parking outside) but could add up if you have to rent a storage bin or warehouse. You might think that large-quantity discount is worth-whileuntil you have to pay through the nose to store all those boxes somewhere.

Naturally, if your supplier ships more slowly, you should set your reorder point higher. Let's say your supplier takes two weeks to fill an order. If you're selling 20 units a week, you should set your reorder point at 40 unitstwo weeks' worth of inventory.

As to how much you should reorder, the answer depends on how many units you're selling per week, how long you expect sales to stay at this rate, how much inventory you feel comfortable with, and what discounts are available for larger orders. If you're fairly confident that sales will continue at current levels for the next two months, and you get an extra discount for larger quantities, go ahead and order two months' worth. (Assuming you have the space to store it, of course.) On the other hand, if you think sales will slow (because of changing fashions, or seasonal trends, or whatever), don't go out on a limborder another few weeks' or at most a month's supply. Order the quantity you feel comfortable withyou're the one who has to assume the risk.

Deciding to Drop Ship

This is as good a place as any to discuss the issue of drop shipping. This is the practice of selling an item that you don't physically have in stock. You make the sale (via eBay) and then notify your supplier of the purchase. Your supplier then drop ships the merchandise directly to your customer, billing you in the process.

While not all distributors offer drop ship services, many do. Check with your wholesaler to see what services are available, or check out this short list of popular drop shippers and drop ship directories:

• 123DropShip.com (www.123dropship.com)

• Doba (www.doba.com)

• MegaGoods.com (www.megagoods.com)

• The Shipper (www.theshipper.com)

• Worldwide Brands, Inc. (www.worldwidebrands.com)

In addition, Wholesale411, eBay Merchandise, and the other wholesaler directories listed previously often note whether a particular wholesaler drop ships or not.

While drop shipping might sound attractive from an inventory management standpoint (you have none to manage), it might not always be the best deal for your customersespecially if your supplier isn't always a speedy shipper. Remember, your customers hold you responsible for shipping the products they purchase, and if a drop shipment isn't prompt, you are the one who'll get the complaints (and the negative feedback). If, for whatever reason (like being temporarily out of stock), your supplier drops the ball and never ships the merchandise, you're on the hook. If this happens too often, you could get the boot from eBay.

So when you're researching drop shipping services, keep a few things in mind. Make sure you understand all the charges you'll have to pay over and above the cost of the item. Some drop shippers charge a larger shipping fee to cover the actual costs of drop shipping, while others charge a separate handling fee for the same reason. Some charge a flat, often excessive amount for shipping, while others calculate shipping based on the delivery ZIP code. (While a variable shipping fee might sound best, you won't know how much you'll be charged for shipping until after the factwhich makes it difficult to pass on this charge to your buyers.)

Finally, make sure you have access to accurate inventory levels (necessary before you decide to post an eBay listing) and that you're provided with tracking information for all items shipped. Given that you have no real control over the fulfillment of a drop-shipped sale, it's important to at least have as much information as possible about the shipment.