One of the best questions you can ask as a retail store owner is “how to predict inventory needs?”, because your inventory is your biggest expense – and so learning to control it results in a huge return on your investment. That’s why I get so excited when I get a question like Elizabeth’s:
I’m just getting started, but I’m concerned about inventory management. How do you accurately predict how much inventory to have on hand at any given time?
First, high five to you for recognizing the importance of inventory management so early on in the process ✋. It’s going to set you up for success right from the get-go.
How NOT to predict inventory needs
First, let’s talk about the wrong way to handle inventory. Picture this: You’re strolling through your store, and you notice a few empty shelves. So, what do you do? You order inventory based on what looks good to fill those spaces, right? Wrong-o! While it’s natural to want your store to look tip-top, ordering inventory this way is like driving blindfolded – not the best strategy for getting where you want to go safe and sound, don’t you agree?
Now, let me share the playbook for doing it right.
How to Predict Inventory Needs Step 1:
Every retail business needs an Open to Buy (OTB) plan. It’s a non-negotiable friends! Operating without an OTB plan is like trying to navigate a highway blindfolded. An accurate OTB plan tells you precisely how much inventory you need to buy, to hit your sales targets.
Your OTB plan connects your inventory to your sales to make sure you have just enough of the right stuff in order to reach your sales goals – and not more than that. It’s made up of projected sales goals, current inventory levels, projected markdowns, and pending orders.
Of these components, the one that is the trickiest to get right when doing this by yourself – is projecting your sales. It can be so hard trying to predict how much business you’ll do, whether this is your first year in business or your 40th.
Side note: Our Open to Buy planning service which we provide to Profit Club clients is able to predict sales with a 93% accuracy, because we use all the data available to us from your unique store, AND from the retail industry as a whole.
The OTB plan is your ultimate guide, broken down by month and class, so you know exactly where to focus your efforts.
How to Predict Inventory Needs Step 2:
Having an OTB plan is the first step. Following your OTB plan is the second. Use it like like your business success depends on it – because it does.
For example, if your plan says you’ve got $10K to spend on inventory this month, but you end up spending $15K, going over budget because you spotted a shiny new line or hopped on a trendy bandwagon will leave you overstocked and struggling.
On the flip side, underspending because you were just too busy to sit down and place those orders, or because you were nervous about spending that amount, will leave you under inventoried which can leave you scrambling to meet customer demands.
Neither scenario is a path to positive cash flow and profits.
By having an accurate OTB plan and taking action on it, you’re removing the guesswork from ordering and setting yourself up for success. It’s like going from looking for something using a flash light – versus turning on the flood lights.
In our Profit Club program, the OTB plan is a key part in the personalized Profit Roadmap each client receives monthly. If you’re wondering how in the world you’re supposed to know how much inventory to buy, what inventory to buy and when – this is the program for you!
Remember, my friends, if you want to be able to predict inventory needs – Create an Open to Buy plan, and use it!
If you find that you are over inventoried right now – you don’t need a weekend sale. I tell you why here!
