Each year, nearly two trillion dollars are lost due to supply and inventory management issues, including losses incurred by eCommerce sellers across platforms. If something isn’t in stock, buyers can’t buy and leave the product details page without a sale. This leads to bigger problems than most sellers realize missing out on sales, organic growth, and BSR. If you are out of stock for some time, you will need to rebuild the reputation of the product again for Amazon’s ranking algorithms.
Being the biggest marketplace, Amazon won’t let customers have a poor experience and as a result, will immediately lower your visibility when you are out-of-stock. To avoid this, Amazon sellers need to keep their inventory in check and ensure they have the process in place to avoid major steps back.
How does out-of-stock impact sellers’ businesses?
Being out-of-stock will hold you back from your goals. Amazon sellers need sales and organic growth to succeed on Amazon, and both get jeopardized if you don’t have your best products to ship.
Loss of sales
As a customer, when you see a product that isn’t in stock, what do you do? More likely than not, you will move on to the next product. To avoid this harm to your bottom line, it’s vital to anticipate your sales velocity. For example, take a look at how quickly you sold products in the past and see if any major shopping seasons are coming up like Prime Day, Black Friday and Cyber Monday, and Christmas. Knowing your sales momentum allows you to maximize high demand while allowing you to be cognizant of overstocking. Done right, you can keep your margins healthy and maintain your sales momentum
Poor BSR
Best Seller Rank (BSR) is the sales ranking in your category. When you lose sales, Amazon lowers your BSR. BSR is a crucial metric for Amazon sellers to understand how their product performs in a particular category. If customers are unable to buy your product, then you lose sales momentum and get a significant drop in ranking.
Lose audience
Once you go out of stock and your regular customers do not find the product, they would buy an alternative. It could potentially lead you to lose sales in the future from the same customer because they had a better experience getting your competitor’s product.
This loss is not only for a particular sale at present but future sales losses. This could lead to an impact on your brand awareness as a chunk of your customers would purchase products from your competitor.
Lowers organic ranking
Your organic ranking will drop as conversion rates are one of the biggest factors in organic ranking. Without making sales on these products, your sales and conversion rates will plummet. Similar to BSR, it takes time and effort to rank your product on Amazon. All that can be damaged if customers don’t see the product available.
In the meantime, competitor products that convert better will take those sales to rank higher. Losing organic traffic will increase the pressure on your paid traffic budget, decreasing profits.
Slows business growth
Not only does being out of stock make it harder to maintain your business, but this issue also makes it harder to grow your business. In fact, the Amazon flywheel effect starts reversing; drop in ranking, lower sales, drop in BSR, a further drop in ranking, and so on.
Amazon sellers launch a new product with the expectation of growing it. Having zero inventory for a brief period can be like taking a fall in a marathon and getting left behind. Your competitors will get the opportunity to take your place. However, a greater loss would be getting out-of-stock on your best sellers.
Amazon penalties
When you run out-of-stock on Amazon, you not only move backward from your KPI goals, but you may also lose your product listing, buy box position, and get your account suspended. While suspension may be an extreme scenario, losing business hurts in the long run. Overall, it hurts Amazon customers’ experience and it may take some time and an extra push to make up your lost ground.
What to do if you’re running out-of-stock?
If you have low inventory and think you may run out-of-stock before the next shipment, here is what you can do:
Contact your suppliers
Find a way to get your inventory quicker. Save yourself from issues that push you to change your strategy. Contact your supplier to request an accelerated replenishment order. You can ask if they can produce your goods faster without compromising quality or safety standards. You may also want to try getting a portion of the inventory quicker through more expensive avenues. The cost might be lower than losing sales, BSR rank, and organic growth.
Temporarily increase prices
Increasing your price on out-of-stock products will slow your sales and maximize profits on your last units. This trick is common among Amazon sellers, but it can be difficult to decide on pricing. If done incorrectly, it can harm your brand and sales.
You can use Dynamic Pricing which considers stock levels and maximizes ROI on low inventory by forecasting sales velocity.
Choose the right fulfillment strategy
Fulfillment By Amazon (FBA) can help simplify logistics allowing you to manage inventory with more clarity rather than focusing on the entire supply chain. Whereas, Fulfillment by Merchant (FBM) provides sellers more control so they can keep up with sales expectations.
Seeking help from an external fulfillment center or your internal team ensures proper planning when sales projections are high while allowing you to expedite the logistics process when necessary. However, doing it wrong could hurt your sales and take longer to deliver products. Instead, you can build out a hybrid model to help you tackle specific issues with FBM while using FBA as a regular solution.
Set a restock date
If you are getting out of stock, you can add a restock date on Amazon Seller Central. Activate the “temporarily out of stock” notice on your account by specifying a restock date. This enables you to accept back orders for up to 30 days prior to your inventory arriving at Amazon’s warehouse.
This way you can still take orders but some customers may not wait to restock and look for alternatives.
Lower your ad spend
If you are running any active advertising campaigns or promotions, you can lower your spend or gradually turn your ads off. It will slow down your traffic and buy you time to restock. Once your inventory is under control, you can start running your campaigns.
Close your listing
When your inventory runs out on Amazon, it can lead to a negative mark on your seller account. However, there’s a clever strategy to navigate this situation and minimize repercussions.
By proactively closing your listing a few units before you actually run out of stock, you send a message to Amazon that you’re taking a precautionary pause in your sales. Instead of being perceived as completely out of stock and unable to fulfill customer orders, you position yourself as a responsible seller who temporarily halts sales due to unforeseen circumstances. This subtle distinction can make a difference in Amazon’s ranking algorithms.
By not being penalized harshly for running out of stock, you’ll have an easier time reclaiming your visibility and climbing the rankings ladder once your inventory is replenished. It’s a strategic move that allows you to maintain control over your account and swiftly recover from the setback of running out of stock on Amazon.
How to manage inventory on Amazon?
It is possible for inventory mishaps to occur, but they can be avoided. While Trellis offers sales forecasts based on our pricing, you can also use the Inventory Planning widget on Amazon Seller Central. By having a tool, you can create an extra layer of security by getting notifications for inventory alerts and recommendations. The widget also offers an Inventory Performance Index (IPI) to assess your inventory management effectiveness and other data such as:
- Products needing restocking
- Days in inventory
- Products in excess
- Stranded products not selling.
If you are an FBA seller, you will have a contingency plan by ordering more than what you’ll need to account for restocking and backup inventory.
If you are struggling with cash flows and can’t pay for the next batch, you can use the above techniques to delay ordering the next batch and strategize when you are low on stock.
Supporting these strategies with different tools give you sales projections and more context about the market. When you align with product demand, you can time your supply.
Book a demo with our experts to find out how Trellis can help you mitigate out-of-stock repercussions through the platform.