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5 Things eCommerce Sellers Should Know About Inventory Turnover and Cash Flow

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Navigating the world of e-commerce can be tricky, especially when it comes to managing inventory and cash flow. Being in business for 20 years, we’ve learned a thing or 2 about e-commerce through our clients and working with the Shopify platform store. One of the most crucial takeaways was understanding the impact of inventory management on profitability and cash flow.

We realized that without proper inventory controls, our e-commerce fulfillment clients, like amazon or eBay sellers were giving away profits and hindering their cash flow on their seller fulfilled orders.

Inventory management is a complex aspect of e-commerce, but it's essential to make informed decisions to avoid costly mistakes and it’s something that FulfillPlus specializes in and offers our clients. That's why we've put together this guide to help e-commerce sellers keep more profit in their business, improve cash flow management, and maintain a profitable long-term business.

Let's dive in!

Understanding Key Terms

Before delving into inventory management and cash flow, it's essential to grasp some key terms:

  • Cost of Goods Sold (COGS): The total cost a company pays to produce its inventory.
  • Inventory Turnover Rate (ITR): How many times per year does your cash flow from sales exceed cash spent on COGS.
  • Lead Time: The time from order notification to shipment.
  • Reorder Point: When inventory levels are so low that they can't be replenished on hand.
  • Average Inventory: The average amount of inventory on hand over a certain period.
  • Economic Order Quantity (EOQ): The number of items to order at one time to maintain stable cash flow.
  • 3PL: Third-party logistics company. (or third-party e-commerce fulfillment)
  • First In First Out (FIFO): Method of inventory management where the oldest inventory is sold first.
  • Last In First Out (LIFO): Method of inventory management where the newest inventory is sold first.
  • Inventory Management Software: Software that helps track and manage inventory levels, COGS, and more.

Focusing on Your Most Popular Products

It's essential to focus on your best-selling products and understand their impact on your business's profitability. By identifying your top-performing products and investing in them wisely, you can improve your cash flow and grow your business more effectively.

Streamlining Your Supply Chain

To avoid cash flow issues, streamline your supply chain by focusing on your niche, working with reliable suppliers, who handle storage and shipping, and monitoring your inventory and lead times closely. By optimizing your supply chain, you can improve efficiency and reduce costs.

Clean Bookkeeping

Clean bookkeeping is crucial for maintaining accurate financial records and making informed business decisions. By keeping your books in order, you can identify tax deductions, detect fraud, and monitor cash flow more effectively.

Performing a Cash Flow Forecast

Finally, performing a cash flow forecast can help you predict future cash inflows and outflows, allowing you to plan for contingencies and make more informed investment decisions.

In conclusion, managing inventory and cash flow is essential for e-commerce success. By understanding key terms, focusing on your most profitable products, streamlining your supply chain, maintaining clean bookkeeping, and performing cash flow forecasts, you can keep your e-commerce business profitable and sustainable in the long term. And who knows, maybe you’ll become a 7 figure Amazon seller or dropshipper in no time!

Looking to partner with a 3PL that isn’t just a platform? Contact us today for a quick free quote!