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Running a business

How to Manage and Track Inventory for Your Online Store

When you sell products in your online store, it’s easy to let inventory management slide, as virtual sales happen without the need to lay eyes on your physical inventory.

However, knowing the basics of how to manage your inventory helps you avoid costly inventory issues that can leave your store rushing to fulfill orders. By using a few key components in combination with inventory management software you will be well on your way to setting up a smooth-running inventory system.

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Forecasting Online Store Inventory

Regardless of whether your online store is new or you’ve been in business a while, you need to come up with solid numbers when ordering items for inventory. Since you’re not a fortune teller, there’s no way to know for sure how many products are going to sell ahead of time, so you use a rough estimate. You can base your estimate on sales from the past three to six months, or longer. Forecasting is easier when you calculate using:

  • Current growth rate
  • Previous year sales
  • Market trends
  • Existing contracts or subscriptions
  • Upcoming advertising

The trick to good inventory ordering is to not order too much or too little. Order too many items, and you run the risk of having unsold items languishing in a warehouse, costing you precious funds that could be better spent elsewhere. Order too few items and your store’s reputation might take a hit when orders cancel due to lack of supply. With a quality inventory management system in place, forecasting accuracy should improve over time.

Using the Par Inventory System

Par levels are a basic concept of inventory management, and this term refers to the minimum amount of inventory you have in stock for each type of product sold. Par levels fluctuate depending on how much stock you order and how much of it sells at any given time. Ideally, it’s a good idea to set up a system that automatically tracks this information.

Imagine how difficult it is trying to manually keep track of numerous inventory items month-by-month. Losing track of par levels can lead to your store running out of a popular item, and in turn to angry customers who vow to never shop with you again. To avoid this scenario, make a point of checking par levels every few months so you can take quick action to increase stock before a sudden sales surge erupts.

Follow the First-In, First-Out Rule

As you continue to order items to beef up your inventory, older inventory may get relegated to a back of the warehouse shelf. This can lead to product spoilage, or products that lose relevancy to customers, resulting in lost sales. The first-in, first-out (FIFO) rule is a simple method for ensuring inventory ordered first is sold before newer inventory. Many warehouses follow this rule, but you should double-check with your suppliers to ensure that all older inventory is moving out the door first.

Anticipate Inventory Problems

Inventory problems can sneak up on you. If you’re not ready, you may struggle to resolve these problems before they get out of control. Let’s say you invest in a “sure winner” that turns out to be a slow sale. How do you get rid of that stagnant inventory? What do you do when a supplier runs out of product in the middle of holiday shopping season? Consider all the things that might create an issue for your inventory, and create contingency plans for each scenario.

Classify Inventory Based on Popularity

When you have inventory that doesn’t sell, it only makes sense to stop stocking it. This makes it important to use stock-keeping units (SKUs) to track items. It also helps you figure out how to clear your shelves of low-turnover products, such as by having a sale. On the flip side, make sure you have inventory on hand for your most popular items, especially if you anticipate a spike in customer demand.

Consider Alternate Storage Options

Look into the possibility of storing some products in regional hubs so you can get orders to your customers quicker. You may be able to make storage deals with national chains that have warehouse space available. As you organize your warehouse, keeping popular items easily accessible can speed up your packing and shipping time.

Ongoing Audits

Periodically, it’s a good idea to conduct inventory audits using quality inventory management software that produces a detailed report. Like many business owners, you may feel one audit per year is all you need. But doing audits every month, or every quarter, can help you stay better informed about the status of your inventory. Audit reports may also help with forecasting and risk management.

With real-time inventory software like QuickBooksOnline, you can have up-to-the-minute information on the state of your inventory at any moment. The best inventory software does the following:

  • Assigns barcodes to each item.
  • Updates inventory records whenever an employee scans that barcode, noting the removal of an item from the warehouse shelf.
  • Update your website immediately whenever you run out of any product.
  • Provides tracking information during shipping, so customers know when to expect delivery.

Inventory software can also provide you with valuable sales analytics data. Likewise, it can send you notifications whenever you run low on a product-by-product basis.

Review Your Inventory Budget

As you go over your inventory numbers, it’s smart to compare them against your budget and make tweaks as needed. Perhaps the products you order regularly have undergone price changes that affect your budget. Make sure your planned inventory order falls within your budget. You may need to allocate funds intended to cover one category of products to another once you compare your inventory and sales budget.

Learn how to create a budget for your small business with these tips.

Manage Inventory-Related Costs

Using smart inventory management software is a good step toward minimizing the carrying costs involved with your inventory, but you can also take other steps to keep costs under control. If you have inventory you can’t sell, you might see if your supplier is willing to take it back. Other options include sales that offer drastic discounts on under-performing items. You might even consider holding markdown or liquidation sales for product lines you plan to eliminate from your product catalogue altogether.

Some small businesses also find it cost-effective to donate unwanted products to nonprofits, taking a tax deduction to mitigate any losses. You might also negotiate better payment terms with suppliers and reduce shipping costs by arranging for drop-shipping, which means manufacturers and suppliers ship directly to your customers to save your business money on processing costs.

Apps to Help Organize and Manage Inventory

If you have an online retail business or sell products through a website such as eBay, Etsy, or Amazon, you need tools to help track and manage your inventory. The good news is that several apps already exist just for this purpose. In many cases, you can sync these apps with your QuickBooks Online account or other versions of QuickBooks so you can keep close tabs on your sales.


Compatible with QuickBooks Online, Shopify offers e-commerce solutions to retail businesses with their own websites, helping with everything from setting up the website to processing credit card transactions. However, Shopify isn’t just for entrepreneurs with their own websites. It can also help you manage sales on Facebook, Amazon, Pinterest, and a range of other sites. Additionally, Shopify tracks your inventory and displays the information on a dashboard when you sign in. You can add new inventory manually, and if you sync a booster app such as Restocked Alerts, you can receive email alerts when inventory is low.

DEAR Inventory

DEAR Inventory is a one-stop inventory solution that can work on a small or large scale. The app can track inventory levels in multiple locations, generate invoices, and create purchase orders when stock is low. DEAR can handle multiple price levels, expiration dates, and customer discounts. In addition, it has costing and aging features that allow you to assess the profitability of individual items and track how long it takes you to sell them. Brick-and-mortar retailers can use DEAR Inventory, and it also offers features for manufacturers. However, if you sell products online, you’ll love how DEAR integrates with many e-commerce sites, as well as with QuickBooks Online.


This app is especially designed for retailers who sell on more than one site or in more than one location. For example, if you have a brick-and-mortar shop and your own website, but also work as an Amazon reseller and list some products on eBay, Agiliron can help. Agiliron tracks inventory for all of your sales channels, and it allows you to look at inventory levels, change pricing, and create purchase orders to buy more inventory – all in one location. In addition to inventory management tools, Agiliron also facilitates order fulfillment activities and helps you manage your supply chain. Along with working with QuickBooks Online, this app also syncs with QuickBooks Desktop.

Connex for QuickBooks

You may prefer to rely on the inventory tracking tools in QuickBooks and use Connex to facilitate communication between your e-commerce site and QuickBooks. This app works with QuickBooks Online, but the company makes similar programs that interact with the Pro and Enterprise versions of the software as well. If you make a sale on one of your sites, Connex for QuickBooks uploads the sale to QuickBooks. Based on that information, QuickBooks can create invoices, generate new client files, reduce the amount of inventory you have on hand, and update your revenue column appropriately. You can catalogue each of your sales separately, or you can instruct this program to organize all of your sales from each site under a single category. You can also set up this app so that it syncs at a certain time every day or week.

Update Your Orders

Once you update your inventory list through a manual count of products, you’re in a good position to update your orders. Keeping inventory in stock proves important because you can lose customers - sometimes forever - if you don’t fulfill their orders. Use your cloud-based inventory software to replenish the stock needed as inventory becomes low, ensuring you don’t run out of your best-selling products.

Keep Your Website Updated

If you run out of a certain product, it’s important to update your website immediately. When customers place orders and pay for products but fail to receive them in a timely manner, they may turn to other sellers. Ideally, your cloud-based inventory management software updates your website automatically, but you may want to put fail-safes in place to make sure this happens reliably.

Consider whether to add information on your site stating when you expect the product to be back in stock. You may also want to take back orders with promises to fulfill them by a certain date.

Adjust Safety Stock Levels

Inventory management typically ends up feeling like you’re walking a tightrope between having too much stock on hand and not having enough. When you have too much stock, it decreases in value as it sits there and takes the place of products that might sell more readily. Plan to have a 30-day supply of inventory, especially for your key products. Consider that your safety stock, and replenish it every time you start to dip into it. As you plan for orders of new stock, pay attention to how long it takes your suppliers to deliver the items you need.

Focus On Quality Control

If your products look (or are) damaged in any way, you may want to pull them from inventory. Ask employees who fulfill your orders to keep their eyes open for damaged goods, and use a checklist to note them during your regular inventory audits. Watching out for the maintenance of your warehouse and shipping equipment is also key to keeping your order fulfillment processes smooth. Broken machinery can halt to the whole process, so take care to monitor your equipment and catch breakdowns immediately.

Adjust Inventory for Seasonal Events

Many online retailers make a significant portion of their income at the end of each year as consumers spend money on gifts for Christmas and other holidays. But those aren’t the only holidays to watch for when stocking your shelves. If you sell stationery and office supplies, the end of summer may be your busy season as students get ready to go back to school. Likewise, winter typically heightens demand for coats, boots, and ski equipment, among other products, and summer may boost demand for sunglasses and swimwear. Use your inventory management season to track the rise and fall of product demand so you can plan accordingly and avoid losing money due to a lack of stock.

When you have a handle on your online inventory, you can react quickly to changing market conditions and maximize your profit. 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.

Back: What is Inventory Management?

Next: Inventory Valuation: An Overview of Costing Methods

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