How to manage slow-moving inventory to boost cash flow

Slow-moving inventory is a problem many retail businesses experience, especially in the beginning and if the operation is small. There are various reasons why product sales may slow down, but addressing the issues as soon as possible is the best defence so you can identify the cause and take action to ensure good cash flow.

What is slow-moving inventory?

Items that take longer to sell than expected are considered slow-moving. The length of time that makes stock slow–moving can depend on the business strategy, product type, and industry. For example, perishable goods have a much shorter shelf life to sell, while homeware items can sell year-round. However, after a certain period, slow-moving products may become ‘dead stock’, where the business believes it won’t ever sell.

The impact of low sales velocity

Slow-selling products can have costly consequences for small businesses. Firstly, leftover stock takes up space, which could otherwise be used for new products that could sell better. There are also holding costs that businesses incur for storing unsold inventory over long periods, such as insurance premiums, storage fees, labour expenses and potential losses from damage, theft, or loss. Stock may also lose value the longer it’s held in storage, especially if it has a short shelf life or is specific to a certain time period. However, products can also lose value if customers sense the low demand. This may result in having to slash the prices to move the stock.

How to identify slow-moving stock

Tracking the sales revenue will help to ensure you’re aware of any low-performing products. To know when an item isn’t meeting demand, you’ll first need to set a sales target based on the previous year’s performance, but with a reasonable level of growth. Then, amend this figure to account for any factors that might affect sales, such as industry challenges, business changes, and product output. Intuit QuickBooks offers cash flow insights to help businesses analyse and understand past and current financial situations, while saving time. How often you review sales revenue targets can depend on your business model, such as whether your products are seasonal or if the industry is volatile. However, it is useful to set a timeframe for reviewing these objectives to monitor performance and adjust if needed. It’s also important to check holding costs around storing inventory, as if this increases, it can indicate a sales slump or over-ordering of stock. Stock insights in QuickBooks Plus can streamline this process further, tracking which products are selling well and sending notifications when stock levels are low. These features help avoid ordering too much stock and help you prioritise high-value products.

What causes underperforming stock?

It’s important to get as much information as possible to understand why sales aren’t meeting targets. For products selling much slower than other stock, investigate the following:

• Is your site’s product page gaining enough reach and traffic?

• How easy is it to purchase the product? For example, too many steps at the site’s checkout page could put consumers off from completing the purchase.

• Has there been a change in your site’s search engine rankings?

• Has your online marketing received the usual engagement and visibility?

• Have customers detailed any feedback or criticism in online reviews, social media comments, emails, or similar?

• Is the product presented in an aesthetically pleasing format on the website and through marketing materials?

• Have you clearly presented the products’ benefits and unique qualities?

• Is the pricing in line with the previous stock?

• Have your competitors recently released similar products, and if so, how does it compare?

• Have you changed the quality of your product output?

• Is there an existing demand for this item?

The cash flow insights can also offer understanding into how new product sales compare to previous items and sale periods, which can provide useful information on seasonality and purchase trends. If the poor sales performance is unexpected, it might be down to unforeseen changes in consumer behaviour. Various external factors can impact spending habits, like the cost of living crisis, rising energy bills, and interest rate hikes. A drop in sales can also be down to timing. If you’re trying to catch a fast-moving TikTok trend or jump onto an event that’s already happened, you’ll likely miss the boat and be left with dated stock. Instead of producing products that tie-in to these trends, consider incorporating it into your social media strategy. 

How to increase the sales of excess inventory

Depending on the cause, there are various tactics to help move stock:

Increase visibility

If traffic to the product pages is low and social media engagement is lagging, your customers might just not be aware of the items. In this case, consider increasing the products’ promotion online and the site’s homepage. It’s also worth investing in your site’s search engine optimisation (SEO) and user experience (UX) to help prevent the same issue from recurring in the long-term.

Alter pricing model 

As production costs increase, this will inevitably impact product pricing. However, a dramatic rise could risk pricing out your existing customers, and to attract an audience with greater disposable income, the product’s quality will need to reflect the cost. If you want to keep your current audience, consider offering discount codes, bundling products or holding a sale to encourage purchases at a more affordable rate. Additionally, if the customer feedback has been around low quality, it likely won’t sell at the set price.

Change marketing strategies 

It’s vital to clearly communicate the benefits and unique qualities of a product to consumers. Otherwise, your audience might struggle to understand the value and why it’s worth their money. If you believe there is a strong demand for the product, it is helpful to create future marketing materials that highlight the product’s benefits. Also, it is a good idea to avoid using jargon that isn’t widely used, as this could lose the key message. As well as being mindful of the language, try using visual aids, such as before and after photos, video tutorials, or beautifully curated product imagery. Showcasing positive reviews, testimonials, and internal studies can also illustrate the item’s perks.

How to prevent slow-selling items

To prevent this issue from recurring, regularly review stock tracking systems to assess the sales performance. You can use cash flow software to plan for the future with projections based on recurring expenses and transactions. It’s also important to keep up with industry news to find out competitors’ output and performance, and any external factors that could impact production. Additionally, communicate with suppliers and stockists for insights on any changing circumstances. To stay up to date with your audience’s needs, it’s beneficial to conduct market research through studies, focus groups, and product testing. The more information you have, the more accurate your predictions around consumer spending to inform your stock volume. While slow-moving stock isn’t ideal, it’s an issue that many small businesses navigate and can also provide useful insights to help you refine your process and stay in tune with your audience.

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