Move Old Inventory

The Basics

First let’s cover the obvious. Whether you are a retailer, distributor, or manufacturer the first solution that comes to mind is always: lower the price. No doubt, sometimes this is the best solution. But how do know whether or not this is the right solution for your particular situation?

True Cost

You need to determine the true cost of holding onto old inventory and trying to move it. You have a certain tangible cost built in. How much you paid for it or how much it cost to make it. Other factors that must be considered to calculate the true cost would be the value of the real estate that the old inventory occupies. If it tales up a shelf and an end cap in a retail space, how much are you losing by letting that space being taken by product that is not moving itself. The same principal applies to warehouse space in the case of a distributor or manufacturer. If you are unsure how to calculate the cost of letting slow moving product take up space just email us and we’ll help. (info@gotothesummit.com )

The other factor to be considered when determining true cost is to calculate the amount of time that your sales force may be investing in a non-profitable endeavor. In other words, if salesman A spends 20% of his time trying to sell a product that makes up 2% of the companies profit, this area needs to be examined more closely.

When you add up the cost of the item, the cost of the real estate it occupies, and the cost (loss) of a salespersons time you will have a good idea of your true cost of holding old inventory or continuing to move it the same way you always have. You have to factor time into the equation as well.

Simple example: If old inventory A has the potential to make $1000 but would take one month to sell and new (potential inventory) B would make $3000 in the same time frame, it would make sense to lose the $1000 and make the $3000 for a net gain of $2000 rather than hold the old inventory A to milk that $1000 just because you can’t take the $1000 loss emotionally. You would still be ahead to take the loss and move on any way you slice it.

Solutions

Once you have determined your true cost you need to examine the other options that you have available in order to move the old inventory. You can:

A. Mark it down and “blow it out”. This is pretty self explanatory. Of course the only way to determine if this is the right solution for you is to know your true cost and make the proper calculations. It is not always the smartest move you can make.

B. Utilize some type of promotion to move it out. The possibilities here are almost endless. Fill out this brief form and we’ll come up with some ideas that may be helpful.

C. Give it away and take the deduction. Again, if you know your true cost of holding it and look at what a deduction will save you in taxes, this could be your smartest move.

D. Throw it away. I’m not joking. There are some situations where the smartest thing to do is just to get rid of it today, take the loss and start making money with another product now. This may sound like only a last resort solution buy actually it can be the best alternative in some cases. Before considering this, make sure that you have exhausted all of your options to donate it first but there are some items that no charity or organization can use.

Conclusion

As you can see, the knee jerk reaction for most business owners that are stuck with old inventory is to “blow it out”. This is not always the most cost effective solution. There are other alternatives.

The hardest fact for most business owners to accept is that the problem of “moving old inventory” is generally one that could have been or should have been avoided.

Always remember to factor in the cost of time. Doing nothing about old inventory is not going to fix the problem. Doing nothing is probably what got you into this problem in the first place. That sounds harsh. I know, but think about it. If solving your problem of moving old inventory now in a cost effective manner can lead to the ability to avoid ever having this problem again, isn’t it worth it?

If you would like to take a couple of minutes to fill out a brief form Go to the Summit will be happy to provide you with some custom solutions geared specifically toward your needs within 24 hours.