How to Determine the Proper Inventory Level

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Abacus-1069213_1920The best way to determine what inventory to carry is to adjust the inventory after the store has opened.  Here is the best way to accomplish this:

Ask your customers as they check out:

  1. What is it that we carry that you like the best?
  2. What don’t we have that you would like to see? 

Retailers need to remember that customers vote with their wallets, meaning that the most valuable market research you will ever have is what your customers actually buy.  You could do all kinds of market research, but the answers you would get are still only theory. The only answers that really count are the ones that customers provide when they put their money on the counter to pay for their purchases. 

If you don’t count the votes of your customers through their purchases, you will not last long in the retail business. You cannot afford to ignore the crucial information that people will give you every day through their behavior. Luckily, with current point-of-sale software, this is easy data to capture.

In the end, floor space should be allocated the same way grocery stores and the most successful department stores do.  They allocate shelf and floor space based on what sells.  If it doesn’t move, you don’t carry it!  To accomplish this, your point-of-sale system should collect the following sales data for each item: 

sales volume

profit margins

turnover rate 

With this information, you will know exactly what inventory items you should stock and how much of each item you should stock.  Stop guessing and start analyzing your sales data!