How Much Should I Invest in Starting Inventory for My Business?
The amount of inventory you purchase at the beginning of your business is a delicate balance, and requires a lot of forethought and research. You do not want to spend too much money and then have too much inventory that you cannot move. Likewise, you do not want to spend too little inventory and have not enough merchandise to sell to your prospective clients.
Running into either of these two situations can mean big problems for your burgeoning business. Not only do you need to know how much your inventory is worth, you need to know how long it is expected to sit on your shelves before it will be sold. It’s not just about your inventory total, but also about how quickly you can expect to move it that will factor into how much inventory you need in order to start your business. Here are some things to consider and some tips to remember when determining how much you should invest in inventory.
Think of your inventory in terms of supply and demand
Naturally, you are familiar with economic terms supply and demand, and you already know that there is a large demand for the products you are selling (or you wouldn’t be trying to sell them). Before you can determine how much you need to invest in your starting inventory, you need to know how quickly you are expected to sell it, and how quickly you will make enough money so that you can buy more inventory. You need to make sure you have enough inventory, so that you can make enough money to both pay off your business loans and that you can buy more inventory, before your existing supply runs out. In order to come up with this number, consider researching some of your competitors, and determining your realistic projected sales.
Stock on hand does not necessarily translate directly to number of sales
Many small business owners believe that if they have more things on the shelves, they will be able to sell more. This isn’t necessarily true, especially if you believe the tenant of economics that teaches us that scarcity (or at least the perception of it) is a big part of the purchasing decision.
When purchasing inventory to start up your business, make sure you set realistic sales goals, and consult with your salesmen to determine a healthy sales goal.
You want enough on hand that everyone who wants to buy, can buy. This will vary depending on what you offer. You should already have a good idea of what demand there is for your product, either by looking at competitors or at sales projections. When first investing, get enough to meet that demand. Don’t go overboard, even if you are expecting heightened demand once the word gets out. As Entrepreneur recommends, “Don’t overdo it.” Invest as much in your inventory as you can, but don’t buy more than you think you need, just because you can afford it.