Managing your inventory efficiently can help you operate with greater confidence and keep your business momentum going. Whether you sell 10 products or 100, knowing what you have, what’s selling, and when to reorder is essential. Develop the right approach to maintain visibility and avoid problems like running out of stock, missing sales opportunities, and tying up money in products that sit too long on shelves.
- When do you need an inventory system?
- 3 steps to start managing inventory
- How to calculate reorder points
- Time-saving techniques: ABC analysis and First In, First Out (FIFO)
- When should you upgrade with inventory management software?
- 5 inventory management tips
When do you need an inventory system?
Not every business needs a formal system on day one. If you sell a few products and can keep track of stock reliably, you might not need to systematize. But watch for these signs that you’ve outgrown memory and mental math:
- You oversold a product and had to cancel or delay a customer order.
- You ran out of a product and missed sales before you could replenish.
- You spent too much time wondering what you have in stock.
- You mistakenly ordered products you already had in storage.
- Customers received the wrong items because stock got mixed up.
If one or more of these issues sound familiar, it might be time to get organized. Don’t wait too long: Getting a system in place before problems arise can be easier, cheaper, and less stressful than building one under pressure.
3 steps to start managing inventory
1. Pick one tracking method
2. Set par levels for products
3. Establish your reorder points
1. Pick one tracking method
A spreadsheet, notebook, or app might work great. But avoid switching between methods or tracking some products but not others. Choose one method and commit to entering every detail into it. Keep it as simple as possible and avoid sophisticated systems you won’t actually use.
2. Set par levels for products
A par level is the maximum quantity of a product that you ideally want in storage. When inventory drops below a certain threshold, you reorder to restore your inventory to the par level. For each product, what’s the highest quantity you’re comfortable holding? That’s your par level. Keeping track of par levels can help you avoid overstocking.
3. Establish your reorder points
A reorder point is a low inventory level that tells you when to replenish. It accounts for demand as well as how long it takes to obtain the inventory. You can also factor in a certain amount of buffer stock to be sure you don’t run out. Identify reorder points and keep track of them to ensure a steady flow of inventory.
How to calculate reorder points
Here’s a formula you can use to calculate a reorder point for a product:
Reorder point = (average daily sales × lead time in days) + buffer stock
- Average daily sales: How many units the product sells per day, on average
- Lead time: Number of days between placing an order with your supplier and receiving it
- Buffer stock: Extra units you keep as a safety net for unexpected spikes or delays
For example, say you sell a candle that moves about five units per day. It takes four days to get the order from your supplier. You want 10 extra units as a buffer in case of a spike in demand.
Reorder point = (5 × 4) + 10 = 30 units
When your inventory drops to 30 units, place your next order. With this strategy, you should receive the new shipment when you need it, with a cushion in case anything runs late.
Calculate the reorder point for products so that instead of guessing, you know exactly when to act.
If you sell in the Amazon store, the Restock Inventory tool can calculate replenishment recommendations for you based on your sales history, demand forecast, and seasonality.
Time-saving techniques: ABC analysis and First In, First Out (FIFO)
Once you know your par levels and understand your reorder points, you can use two methods to manage inventory more effectively: ABC analysis and First In, First Out (FIFO).
ABC analysis
ABC analysis can help you decide where to concentrate and what products to prioritize. Do a fraction of products generate most of the revenue for your business? Group your products into three categories based on their contribution:
| Category | % of SKUs | % of revenue | Your focus |
| A | ~20% | ~80% | Highest oversight: Tight reorder points, frequent counts, closest supplier relationships |
| B | ~30% | ~15% | Moderate oversight: Standard reorder points, regular monitoring |
| C | ~50% | ~5% | Least oversight: Looser reorder points, less frequent reviews |
To apply ABC analysis, sort your products by total revenue. Your best revenue generators go into category A. Give those products tighter reorder points and track them more closely. Your B products get standard attention. Your C products still need tracking, but they might fluctuate more without causing issues.
Use this approach to keep your effort proportional to each product’s value, channeling your energy where it drives the most revenue.
First In, First Out (FIFO)
FIFO stands for First In, First Out. With this principle, you sell your oldest stock first. For example, you sell batches of inventory in the order that you receive them, instead of selling newer stock.
FIFO can be especially useful if you sell anything with a shelf life. For example, food, cosmetics, and seasonal products can lose value the longer they sit. But FIFO can also work for anything you sell, helping you to avoid unsellable inventory.
For example, say you order bottles of hand soap in batches. Batch one arrives in January, batch two in March, and batch three in May. When the first batch arrives, you use those units to ship customer orders. You place newer batches behind the older ones on your shelf. This way, nothing sits for too long in the back, while fresh stock ships to customers.
To use FIFO, organize your storage so older inventory sits at the front. Label batches with received dates so you don’t lose track. This habit can help prevent waste and ensure products reach customers in good condition.
When should you upgrade with inventory management software?
As you grow, managing your inventory can become more complicated. Watch for these signals to determine when you might need extra help:
- You sell across multiple channels and syncing stock manually takes a long time.
- You manage dozens of active products.
- Data-entry errors are an issue.
- You spend too much time on inventory tasks that software could automate.
- You want to outsource storage, packing, and shipping to inventory management programs.
When you’re ready to switch, prioritize software that will be cost-effective based on your budget, integrate seamlessly with your current setup, and provide convenient features like low-stock alerts.
If you sell in the Amazon store, you can take inventory operations to the next level with Seller Central, which has built-in dashboards and features for tracking stock levels, automating low-stock alerts, and more. You can also explore a wide range of automated solutions through our Selling Partner Appstore.
5 inventory management tips
- Do regular stock checks
- Resist overbuying to get bulk discounts
- Track across all sales channels
- Monitor seasonal patterns
- Keep enough buffer stock
1. Do regular stock checks
Set aside a certain amount of time to check your stock levels on a recurring basis. For example, it might work best to choose the same time each day or week. Count your actual stock and compare it to your records. This habit can help you catch any inconsistencies before they become a problem.
2. Resist overbuying to get bulk discounts
A lower per-unit cost can be enticing, but if a product doesn’t sell as fast as you expect, you could end up with dead stock. A safer strategy might be to order smaller quantities until you have reliable sales data, then scale up.
3. Track across all sales channels
Do you sell on your own website, in a store like Amazon, and at local events—or maybe all of the above? If you use the same pool of inventory to supply more than one channel, be sure to track sales together. For example, you don’t want to have to cancel an online order for a product if you sold the last unit at an in-person event.
4. Monitor seasonal patterns
Sales in November might look different from sales in March. Keep an eye on monthly totals and take seasonal fluctuations into account as you calculate sales averages. Adjust your par levels and reorder points before the busy season arrives, so you can prepare in advance and adapt to shifts in demand.
5. Keep enough buffer stock
Buffer stock can be a balancing act. The goal is to have enough extra inventory so you don’t miss out on sales in case of a sudden spike in demand, a supply chain delay, or another unexpected event. But too much buffer can lead to issues like expired products or unsellable inventory. To calculate the right amount for your business, look at sales data for each product, take trends into account, and keep more backup inventory for your best sellers.
Start simple and stay consistent for optimal inventory
Inventory best practices don’t need to be complex as you get started and grow. Use one system and check your numbers regularly. Set your par levels. Calculate your reorder points. Consider applying ABC analysis, and use FIFO to keep stock fresh. To improve results, you can also try inventory tools and fulfillment services.
In the Amazon store, we offer a wide range of inventory management programs and features to help your business get organized and scale.
^This content was produced with the assistance of generative artificial intelligence (gen AI).
*A Professional selling plan is $39.99 per month + selling fees. Learn more
