Retail, wholesale and manufacturing businesses that carry stock have experienced a tumultuous time in the last few years, to say the least!

I’ve seen everything from issues obtaining stock from overseas to fluctuating customer demand. Now we’re going through a period where businesses either can’t get the stock they need, or they have too much stock on hand [which may also be a struggle to move].

Now operating in an inflationary environment [yes that’s a real term!], it’s more important than ever to keep costs under control. To help you tackle these obstacles, I’ve combined a few of my key strategies you can use to manage your cash flow and stock.

strategies to manage your cash flow and stock

 

don’t be quick to discount

Before we begin, let’s talk about what not to do, which is jumping to discounting your product or service. Whilst you may think discounting is great to spur an influx of sales, it also trains your customers to buy only at specific times.

Think back to the old toy sales that Big W, Target and Kmart used to do. Parents went out on one set day and bought all the toys for their kids for the next year at 40-50% off of the retail price. They essentially cannibalised their sales by 40-50% because everyone purchased on that one day!

In a world where discretionary spending is being squeezed, we are seeing retailers and wholesalers trying to liquidate stock. They get stuck in sales cycle that see’s them jumping straight into discounting when stock arrives. Unfortunately, all they are doing is sacrificing their margin.

For a better way to manage your cash flow and stock, follow these 6 rules:

 

understand your inventory demand and margins to know where you stand

A good way to get a clear understanding of your inventory margins and profitability is to start by asking yourself these questions:

  • What is the real cost of the goods you’re selling?
  • What is the impact of foreign exchange on your business?
  • What is the true cost of freight, warehousing and logistics staff?
  • What sales do you need for your business to break even and then make a profit?

We are currently seeing a general increase in the pricing of goods, so this is the opportunity for your business to increase prices rather than discounting.

It is important to review the pricing of your products regularly, but during a period of inflation, it is critical. You not only need to maintain your margins as your own costs increase, but you also need to ensure you don’t miss the boat.

I believe once we get through this period of inflation, we may go through a period of price stagnation, where businesses won’t be able to put the prices up. If you don’t get those price increases now, you may struggle to get them in 12, 18 months, or even 2 years, depending on your industry.

However, before increasing prices, ensure there’s demand for your product. Demand planning is essential, so make sure you’ve only got enough stock on hand to meet demand to avoid over-ordering.

 

reward good customers

When you have excess stock on hand you are looking to move or when the demand has been fluctuating, you can look to reward your good customers through bundling.

In certain wholesale industries undertaking a ‘bundling your stock’ strategy such as ‘buy 13 for the price of 12’, or even giving your customer additional units in exchange for an early settlement, can help move stock and increase customer loyalty.

This way we are keeping cash coming in and providing a bonus to good customers who we know are going to take that into the retail market. This can be a better strategy than discount, as it does not drop the per-unit value of your goods.

 

carry out ‘test marketing’

To maximise your margins, you need to think differently. We’re seeing customers’ tastes changing and along with that, their loyalty.

Historically, business owners may have been spending a lot on Facebook marketing or Google AdWords or pure spending in the market, but we’re finding the cost per click or the cost per impression has gone up dramatically.

To counteract this, we are focusing on our existing customer books and looking at different marketing activities. We’re considering different wholesale retail markets and non-traditional retail paths as a way to move stock through different channels.

We’re also finding some wholesale markets that are providing us with a better return than direct-to-retail because of the cost per click. So, we’re trying to think a little bit differently about how we’re getting the product to market to maximise margin.

 

understand your overheads

Although industry-specific, understanding your overheads is vital for that break even and you should be looking at where you can be cutting some of those overhead costs.

To get a better understanding, think about some of these questions:

  • Do you need to be spending the amount you are on your warehousing?
  • Is your 3PL [if you’re using a 3PL], giving you the best value for money? Or are there alternative options out there?
  • Are you getting the best return from your marketing activity?
  • Are you getting the best return from some of your service providers?
  • Are subcontractors giving you the best return or should you be bringing some of those services back in-house?

A line-by-line review of your profit and loss is sure to uncover opportunities for savings and to ensure you’re getting the best return on each spend.

That then equates back to the number of units the business needs to sell each month to break even or to get the desired profit. The less the business spends, the less it must sell and the less pressure there is in the market now.

 

time the payment of your sales commissions

Make sure your sales commissions are paid when you receive the money. You should be rewarding your sales consultants in line with the actual cash you receive from their activities.

Historically where commissions are paid at the time of sale, there is a chance that the cash is never received and the sale winds up being a bad debt. In this instance, the businesses loses more than the sale as they have also already paid the sales representative.

 

be honest about your saleable stock

Customer tastes change over time and items that may have been attractive in the past [or even recently] are no longer desirable, especially as the number of  discretionary spenders in the market reduce. This leaves certain stock just not saleable, or as recoverable as it once was.

When this happens, discounting may be your only choice. If the cost of keeping the stock is greater than disposing of it [and more than any profit to be made off it] then it might be time to donate to charity or dispose of it.

We all make mistakes. Some retail tastes have changed, spending has changed and sometimes it’s quicker to turn it back to getting whatever cash you can get from it, or just cut the cost all together.

 

final thoughts

Cashflow strategies can be complex so if it’s an area you’d like to get some more detail on, feel free to reach out and have a chat with us here at businessDEPOT.

 

we’re here to help

If you need advice on managing your cashflows, you’ve landed at the right place. Simply give us a buzz on 1300 BDEPOT or shoot us an email at oneplace@businessdepot.com.au.

 

get more ecommerce insights

If you found these tips useful and you’d like to get more information on all things e-commerce, you can sign up for our mailing box here!

 

general advice disclaimer

The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.