Selling products isn’t just for retailers—almost every small business can benefit from diversifying its revenue in this way. During times of economic uncertainty, offering merchandise is a great strategy to insulate your business from hardship and shore up your finances.
For example, a dog kennel might begin to offer grooming services, gourmet treats, and pet accessories like collars and leashes to create more income streams. Or, a hair salon might sell styling tools and products for at-home use.
No matter what products you choose to sell, you’ll need to ensure your business effectively manages product inventory. Following the tips we recommend below will help you avoid common pitfalls that lead to wasted resources, maximizing profits and sustainability. Let’s begin!
Why Inventory Waste Happens (& Why It’s a Problem)
Inventory waste is simply stock that your business owns that cannot be sold. There are many reasons for inventory stock, such as:
- Overstock—in other words, supply outweighs demand
- Defects or damages to the products
- Expired items
- Obsolescence (e.g., backstock of phone cases that only fit older models)
No matter the reason for it, inventory waste can lead to larger problems that could significantly harm a small business, including:
- Wasted product: Resources were used to produce, ship, and stock the items in your store, but the products likely won’t be used or sold.
- Financial losses: Your business invested in items that it cannot profit from now.
- Clutter: Unsold merchandise clutters your sales floor, backroom, or warehouse, taking away valuable space that could be used for other purposes.
- Missed opportunities: You might remain too focused on selling backlogged inventory to stock trending or innovative items. The money spent on wasted inventory also eats into your budget for experimenting with new items.
These consequences may sound scary, but don’t let them discourage you from leveraging retail to support your small business. Let’s look at some proactive steps you can take to prevent wasting inventory and strategies for selling or repurposing unwanted items.
5 Tips for Maximizing Profits & Limiting Unwanted Inventory
1. Keep accurate records.
Maintaining accurate, up-to-date records ensures you know exactly what your business has, what it sells, and where inventory is stored. This task can quickly become complicated if you have multiple locations, operate both brick-and-mortar and online stores, or receive frequent shipments. This is why it’s best to use business management software with robust inventory tracking features that will sync data across locations and online and offline shopping formats.
Use your software to track trends that can inform your business’s future buying decisions. For example, you might identify top-selling items to determine how much of the product to order each month or pinpoint peaks in demand to prepare for both busy and slow seasons. For instance, an ice cream shop might buy twice the ingredients during the summer months as it would for the slower winter season.
Artificial intelligence (AI) and predictive analytics can help you forecast trends based on your business’s historical data. This way, you can make informed decisions about ordering inventory data rather than relying on guesswork.
2. Implement a first in, first out system.
The first-in, first-out (FIFO) inventory management system focuses on selling or using the oldest stock first. Under FIFO, you would put an order from December on the shelves before stocking products received in February. FIFO follows the natural flow of your inventory and is simple to understand and implement.
This method can be used in any industry, for any product type. Specifically, it’s recommended to use FIFO to manage food, drinks, and beauty and wellness products that have expiration dates. Additionally, industries that experience volatile pricing or are subject to inflation use FIFO to maximize profits. This way, you can ensure the sales price aligns with what you purchased the inventory for.
3. Repurpose, repackage, and bundle merchandise.
We’ve all had leftovers sitting in our fridge that no one wanted to eat, whether that’s a handful of chopped veggies or a lone piece of grilled chicken. But by adding the veggies to an omelet or topping a pizza with the chicken, you transform leftovers into exciting new meals. You can do the same with stubborn products that have been on your shelves for weeks.
For example, let’s say a dog grooming business is looking to clear out some grooming products to make way for new inventory. To avoid tossing these products or letting them expire, the business might:
- Sell the products as add-ons when customers book grooming sessions.
- Create themed gift baskets with the products, such as a “new puppy” basket with gentle products that could be gifted to a new dog owner.
- Offer tailored bundles with products intended for specific breeds or coat types.
- Put together gift bags to reward loyal customers.
- Create bargain boxes that feature discounted items, explaining that they must go to make room for exciting new products.
Be sure to promote these repackaged products and bundles to your customers to boost sales. Post photos of visually appealing gift baskets on social media or send out text reminders to claim limited-time, cost-effective bundles.
4. Leverage discounts and promotions.
As we hinted above, discounting products is a great way to encourage customers to purchase older products that you need to move out of your stock. This could mean creating a bargain box, offering buy-one-get-one deals, or simply taking a percentage off the standard price.
However, you must plan and implement discounts carefully—dropping prices too low can lose you money. Here are a few rules of thumb to consider:
- Know your gross profit margin. Calculate your gross margin before discounts with the following formula: (Revenue – Cost of Goods Sold / Revenue) x 100. Determine the minimum margin you need to maintain profitability and price discounted goods accordingly.
- Consider the season. Apply higher discounts to products that are at the end of their lifecycle or are going out of season. For example, holding a 30% off sale on sweaters in the early spring months will make way for new spring apparel while still ensuring some profit.
- If you’re unsure, test out the discount. Start with a small discount that you’re comfortable with, like 10% off. Track how much sales volume increases for the discounted products. If volume increases enough to offset the revenue lost from the promotion, move forward with a heftier discount.
Promotions don’t just help your business reduce wasted money and resources—they can also bolster relationships with customers. As Gingr’s guide to digital marketing explains, promotions are one of the best ways to attract new customers and reward long-time, loyal clients.
5. Donate to local nonprofits.
Sometimes, despite your best efforts, you may not be able to sell each and every product. Or, maybe you want to make a difference with products that may otherwise go to waste.
Consider donating overstock to local organizations as part of your business’s corporate social responsibility efforts. Returning to our dog grooming example, this business might donate excess it can’t sell to an animal shelter. Or, a boutique could give out-of-season clothing to an organization that provides resources to those experiencing homelessness.
While these donations can truly make a difference, you should never donate expired, broken, or damaged items. Nonprofit beneficiaries deserve functional, quality goods that won’t put them at risk of harm (and organizations may not even take these items if they violate their gift acceptance policies).
Effectively managing your inventory as a small business is a challenge, and the only way to consistently avoid waste while taking advantage of trends and opportunities is to have data on your side. Leveraging the right business management technology and diligently tracking inventory will save you plenty of headaches, proactively reduce waste, and help you understand your customers’ buying behaviors.