Hello, welcome to our first newsletter!
What to do with excess inventory?
Our client had a problem.
He had ordered too much of a product that had unexpectedly stopped selling, mainly because of competition and he was stuck with a ton of stock.
The items were at a third-party logistics (3PL) facility, and the monthly storage fees were adding up quickly.
He needed to get rid of the excess inventory as quickly as possible— but how?
We sat down and brainstormed a plan. The idea was to find the right price for the item to get people to buy it while still making a profit. But we also wanted to sell as quickly as possible so he adds cash to the business and isn’t charged with much storage fees.
We needed the right balance of profit and cash flow.
We opened a Google Sheet and added three different price points we thought would be viable. Then, we estimated how much he would sell per day for each price point.
Finally, we added the fees and calculated the storage fee based on how much stock there would be at the 3PL facility.
What we found the lowest selling point would take him 3 months to sell out which will have the least storage fee, the middle option would take him about 6 months and the most expansive option would take about a year to sell out.
But from the profit point of view the lowest option he would have a loss on each sale even though he had less storage fee. The second option he would have a very small profit after the 6 months storage fees. The last option gave him a little better profit but not much more than the middle option, but it would take him a year to get the cashflow.
He decided to start out at the middle option and if sales pick up again, he would gradually higher the price while keeping the sales going.
This type of calculation can help anytime you have an item that can be sold at a few different price points, and you want to analyze how much profit each price point will give you and how long will it take to sell out and fill up with cash.
We created an excel sheet with these formulas for you to use. Click on the link below to download it.
Let me know if you were able to use it and if it was able to give you some clarity!
