How much inventory do you need for Amazon FBA? Using the knowledge gained from my years of experience growing my own Amazon FBA business, I’ll share with you what I know about managing your inventory levels.
If you’ve already started selling on Amazon, it’s critical to understand how much inventory you need to keep in stock, in order to be successful with Amazon FBA.
Here’s a quick summary to start off…
To determine how much inventory you need for Amazon FBA, start by selling a small quantity of your product so you can figure out the sell-through rates for your products. Then, assess how much inventory is needed based on both this sell-through rate plus the time required to restock the product. Your goal should be to avoid running out of stock while also not overstocking either.
Let’s start with some assumptions:
- You’ve established your brand or your product that you’re going to sell, or you have a regular source for your arbitrage system
- You’ve appropriately priced your products to beat out the competition and get the buy box, or you have a product that you regularly beat the competition with
- You’ve also ensured your product is at a price point that, after all your costs are accounted for, you still have a healthy margin and are profitable
- Your product is selling regularly and customers are satisfied
Given all that, what do we need to know?
Inventory Becomes Important for Amazon FBA
Often, when you’re first starting out selling on Amazon, there are more important factors to pay attention to besides inventory levels. You’re likely happy just selling your product at all, while trying to avoid losing money with Amazon FBA.
Or, perhaps you decided to start selling several products at once. Then you notice one of your products is very popular and it’s already out of inventory, but you thought you sent in the right amount of inventory to start.
Whatever your situation, let’s see how you determine the proper amount of inventory you need for Amazon FBA.
Understand How Huge Amazon Is
According to the website Statista, Amazon’s cumulative sales in 2021 were almost 470 billion dollars!
Therefore, selling your product on Amazon via Amazon FBA, if it’s an in-demand product, means it could sell out much faster than if you were selling from a physical storefront, or through your own ecommerce site.
Remember, Amazon is like a store that’s available to the entire country – all at once – and for some products, even globally! Amazon’s reach is so big, and its audience of customers so huge, that a product that is in high demand can sell out quickly.
Once you understand this, you may need to consider raising your expectations and initial inventory levels accordingly. In some cases, it could be several hundred more units than you were first planning if your product is a fast-seller.
If you’re selling items that have a wide audience, then having three months’ worth of units in stock when you start selling on Amazon can be a great place to begin. Having this much stock available to sell will give you the time to monitor how quickly your product sells through without running out too quickly.
But how do you know how many units of your product represents three months of sales? Let’s talk about sell-through rate…
Understanding Your Sell-Through Rate
Your sell-through rate is how many units of your product sell in a given amount of time.
Amazon tracks this for you, you just have to know where to find it. The easiest place to find this is in the Inventory Management area of Seller Central. Click on the product’s SKU (circled in red in the picture below)…
…then a page will come up showing you how many units have sold in the last 7, 30, and 90 days, as shown in the red box below. In the example below, the 7-day sell-through rate is 37, the 30-day sell-through rate is 122, and the 90-day sell-through rate is 248.
Getting Stock Levels Right
Your product won’t restock itself, so it’s important to get units to Amazon when you start to run low.
To determine your product’s appropriate stock level, you need to be able to account for the time it takes to source your product and get them shipped to Amazon. Don’t forget to add a small amount of time for Amazon to receive your product, which is typically a few days.
Once you know how long your sourcing and shipping time is, you can add it to your sell-through rate, and then you will know how much stock you need to have to never run out.
It’s also a good idea, even with the very first units of your product you send to Amazon, to have additional units ready to ship at a moment’s notice. That way, if your product sells faster than you were anticipating, you’ll have some ready to go. Having this extra bit of stock on hand also helps if there are delays with your supplier the next time you place an order.
Time to Restock Example:
I’ll use an example to show you how to determine your time to restock.
Let’s say, like me, that one of your products is a mouse pad, and you’re selling 2 mouse pads per day. This means your sell-through rates are:
- 7-day sell-through rate is: 14
- 30-day sell-through rate is: 60
- 90-day sell-through rate is: 180
Therefore, if you have 28 units in stock, you have 14 days to procure and ship them to Amazon to prevent stocking out.
28 units in stock, divided by the sales rate of 2 per day:
28 / 2 = 14
means you have 14 days to restock.
Don’t Run Out of Stock
Why all of this attention to know how much inventory to keep at Amazon? It’s because you don’t want to run out of stock.
If you run out of stock, your sales ranking will degrade, and your product will no longer show as available for purchase on Amazon.
It’s a bit different if you’re a reseller of an existing item with competing resellers on the same listing. If you run out of stock for a product like this, your offer just won’t show up for a customer to buy from since you’re out of stock.
If You Run Out of Stock of Your Own Product
This is primarily for those that have a private label or their own brand they are trying to sell via Amazon FBA.
If you have an existing presence through offline and other online channels, do not assume what your Amazon inventory should be based on what your current sell rate is in your other channels.
While being out of stock in your store or on your website may not be the best customer experience, you will recover easily with good customer service. However, being out of stock on Amazon means you could lose some of your existing customers and repeat business very quickly.
Unlike with your own website or store, there’s no communication you can send to your Amazon customers, like an email to them stating you’ll be restocked soon, or a way to add to your Amazon page that a restock will happen eventually.
Then, when you do get your product restocked at Amazon, chances are you’re going to be looking at targeting a whole new customer base, because customers don’t wait around for a product to be available on Amazon.
That’s why it’s important to use the data Amazon makes available to you, like sell-through rate. That data can be the difference you needing to start the cycle of sales all over again, or continuing to grow your business by keeping your product in stock.
If You’re Sending Stock to Amazon for the First Time
What if you’ve never sent stock to Amazon before, and you have no idea where to start?
If you’re sending stock to Amazon for the first time, I recommend starting small with your first shipment. What number is small? 50 units to start is a small enough amount that, if you run out of stock quickly, you can always send more to Amazon in just a few days.
However, if your product doesn’t sell quickly, and you send lots of units to Amazon, you will have to pay long-term storage fees on unsold units. Also, if you decide to remove units of your product from Amazon’s warehouses to avoid the storage fees, Amazon charges you a removal fee to do so.
Given the potential storage and removal fees incurred by sending too many units, versus the relatively minor issue of needing to restock a sold-out product, I recommend you start small with your first shipment to Amazon.
Competing Goals: Efficiency Versus Profitability
Efficiently utilizing Amazon FBA’s warehouses while trying to maximize your profitability is something of a balancing act when it comes to your inventory levels.
First, you have a limited amount of storage space you can use within Amazon warehouses. Then you need to pay storage fees, which are on top of the various other fees you pay to use Amazon FBA. If you’re not careful about managing your inventory, the additional fees can really eat into your overall profit margins.
Knowing you have to keep your inventory levels low enough to minimize these fees, while also keeping your inventory levels high enough to not run out of stock, is how you’ll best balance efficiency and profitability when selling on Amazon.
More Amazon FBA Help
I hope this has answered your questions regarding how much inventory you need for Amazon FBA. I’ve been selling on Amazon a long time, and I’ve made all the mistakes any beginner could make, so I’m sharing all I know to prevent others from having to learn the hard way like I did.
Be sure to check out my latest articles about selling with Amazon FBA.