How to calculate cost of restocking Amazon inventory

Save thousands by keeping inventory in stock with this simple tip
Seth Kniep
October 4, 2017
Grow your Amazon store
It's amazing how quickly you can run out of inventory when you start selling really well. How do you manage the money that is coming in while also staying in stock? It gets difficult to have enough money to buy inventory to keep going, especially if you are living off that money for your own means. You need money to make money. The more money you have, the more you can make out of it.

I was actually devastated the first time I saw this tool, because it showed me how many thousands of dollars I lost the 30 days before. I’m going to show you guys how it works; it is very helpful for me and I hope to you as well.

Open up Seller Central, then head over to “Reports” and under the dropdown select “Amazon Selling Coach.” This resource has some excellent tools and articles.

Go to “Inventory In Stock Report.” From here, you'll see what is and isn’t in stock. 

Click on “Fulfilled by” and select “Amazon Fulfilled.” This shows only the ones shipping FBA, since I manage my own merchant inventory.

Now I’ve done that, I’m ready to go through this chart. I’ll take you through each column to explain it as simply and helpfully as possible.

In Stock % (over time): When you send an item to Amazon’s warehouse, this gives you the percentage of time the product had available inventory. For my first item here, it was in stock 100% of the time. That’s a good thing.

Estimated Lost Sales and Estimated Lost Sales (Units): This will show you how much money you actually lost in sales as a result of not having items in stock. This is where it gets scary. I’m going to click the column to sort it by the greatest to least losses per product. So from just one item, I lost $3,823.20 because it wasn't in stock. That’s not good.

Estimated Days of Cover: In other words, how many days is your stock going to last? One item says 73 days, that’s pretty good. That’s a bit over two months.

Current Inventory: This gives you exactly how much inventory you have in stock right now. 

Days Out of Stock: How many days in this time period (the default is 30 days) was it out of stock? The one I lost $3,800 on was out of stock 27 of those 30 days. That’s terrible.

Unit Sales: This gives you how many times that unit sold in your given time period.

Weekly sales rate when in stock: This is what the weekly sales were when the item was actually in stock. 

Sales Rank: Of course, this is the Best Seller Rank of your item.

This tool is so helpful because it holds up an accounting financial mirror and shows me the areas I need to further develop my business. It forces me to plan ahead. I’m showing you some of my worst examples here to show you how much money you can lose. That was just a piece of it; the total estimated lost sales, when added up, was over $8,500. 

I created a super simple tool based off of this one that helps me know exactly what I need to purchase and how much it’s going to cost in order to keep things in stock for the next two months. 

Here’s the spreadsheet I created to make this very easy. First, you have your product name column for the names of your products. Second, you have your current inventory; how many items are in stock right now. Third, this is how many sales the item has had from the last 30 days. I just dropped in the numbers from the tool on Amazon. So for Product One, I had 44 sales in the last 30 days. 

Then we come to Inventory Needed. I created a simple formula that multiplies the sales I did in the last 30 days times two, because I want to have enough inventory for 60 days, then subtracted from what I have in my inventory right now. Then it will automatically tell me how many I need to purchase.

So for Product Two, for example, I have six in inventory and sold 33 over the last month. If I want enough for the next 60 days, then I need 60. I did that for each item, so we have how many we need in inventory for each product.

Then you look up the wholesale cost for each item. So the first item cost me $50, as well as the second, while Product Eight cost me $3. You need this to figure out how far you can go to buy inventory.

Finally, the Capital Needed is a super simple calculation. It is the cost of each item multiplied by how many you need. So the Inventory Needed covers 60 days of inventory: you don’t need to buy any more inventory again for these nine products for the next two days. 

Some items have a negative number for Inventory Needed: that means you already have enough to cover the next 60 days of inventory, so you don’t have to worry about restocking them just yet. 

You can add up all the numbers under Capital Needed to see how much you need to restock all these items to last you 60 days; in this case, it is $8,531.68. This gives you a very realistic view of the future.

You could even go further and multiply your profit margin by your total cost to see how much you’re going to get back in your bank: if your profit margin is 100%, then you’re going to have $17,000 back. That’s a big chunk of money to buy more inventory and live off of.

It is so important to know your numbers. In the book “Rich Dad, Poor Dad,” Robert Kiyosaki talks about how one of the four keys to building wealth is knowing accounting. You don’t have to go get a degree or be an accountant, you just have to know your numbers. Know what you’re spending, what you’re making, and what your profit is. It will help you forecast for the future.

This was not one of my strengths when I started. I love taking risks. I love relating to people. I love making sales and negotiating and marketing. This is something I had to work really hard on, and I still have a lot to learn! 

I hope this gives you a specific idea of how to make good calculations and watch what you need to spend, and I hope it’s as helpful to you as it has been for me. Have an awesome day.

 

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

Dead serious about building income on Amazon with eight successful coaches in a community of badass Amazon sellers? Join the Amazon FBA Mastery membership.

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