This is a guest post from Julian Bonte-Friedheim. Julian writes about the ins and outs of eCommerce for 8fig, a company that provides flexible funding to online sellers. Their advanced AI CFO technology gives sellers the tools to scale their operations and optimize their supply chains for sustained long-term growth.

Seeing your products sell in large quantities is the dream of every FBA (Fulfillment by Amazon) business. However, behind this triumph hides an insidious risk: running out of stock. What appears to be a blessing can quickly become a curse. When your inventory is empty, you lose huge sales, possibly even during a peak sales period.

Other downsides can arise as well, from lost customer loyalty to decreased product ranking. In this article, we offer the best tips for preventing stockouts — and derailing your sales momentum.

How does a stockout affect an FBA business?

Running out of stock is a nuisance for any retail business. However, as an FBA seller, that misstep can harm your operations in even more ways.

Lost sales

Stocking out at the wrong time can cost you your best potential sales window. This is especially important if you sell seasonal items like school supplies; being out of stock during the few weeks in August before school restarts can mean major profit losses. Or, if you sell heart-shaped chocolates, running out of inventory the week before Valentine’s Day can be extremely costly to you.

Poor customer retention

With perks like same-day shipping becoming the norm, customers are now highly demanding when it comes to convenience, and seeing a product they want out of stock can induce frustration. That, in turn, may drive them to shop with competitors, which risks even previously loyal buyers switching over and committing to another brand.

Products that are needed regularly and purchased with a subscription are particularly vulnerable to this outcome. In the worst case, it can even result in someone writing a negative review of your product to express their frustration and deter potential buyers.

As such, staying in stock beyond simply keeping your sales at a consistent level quietly maintains your repeat customers. Adequate inventory gives them one less reason to leave you for a competitor.

Reduced ranking

When your product runs out of stock, Amazon responds by lowering your ranking on search results pages. The marketplace has a vested interest in doing so, since clicking on a product that’s unavailable worsens the overall customer experience. Additionally, shoppers who can’t purchase the item they want are more likely to buy from a competitor like Walmart, delay their purchase, or abandon their cart altogether. For these reasons, Amazon does their best to make absolutely certain people only see items that are ready to ship right away.

You might spend $1–$5 dollars in marketing budget to target someone with ads and move them through your purchase funnel, only to lose them because of a stockout. Worse, running out of stock incurs several hidden costs you may be unaware of (more on this later). When you eventually restock, it’s possible to regain your ranking, but it’ll take time and more of your marketing budget. That’s in addition to lost consumers who might not return and now prefer to buy from competing brands.

Loss of reviews

This may seem like a small factor, but regular positive reviews on your product listings is a significant sales driver. One study found most online shoppers look at reviews, with 93% of them saying it impacted their buying decisions.

Sometimes, listings experience a change in production or are sourced from a new supplier, causing deviations in quality; recent positive comments serve to reassure customers about the continued excellence of the product. Knowing that people bought the item recently and were happy gives consumers more confidence to click “Buy.” So, a prolonged stockout that produces a gap in product reviews can deter new buyers, even once you’re back in stock.

How to avoid running out of stock

The main cause of stockouts is supply chain mismanagement. With clearer oversight of your operations, you’ll be better able to anticipate and avoid disruptions that lead to running out of stock.

Use supply chain planning tools

To build a seamless supply chain, you need appropriate software designed to reduce the margin for error. Accurate, data-driven inventory forecasting can make an immense difference in understanding when to order your next product shipment. The goal is to create a broad outline of your logistical processes.

For starters, plan your shipments according to your predicted sales numbers. You want to identify the thin line between avoiding a stockout and acquiring too much inventory and needlessly increasing your storage costs. By mapping your expenses, you also increase your cash flow, which is always beneficial.

Using supply chain planning software will also sharpen your oversight of your operations and expenses. Being able to monitor them and spot abnormalities early on will enable you to adapt quickly and avoid situations that cause stockouts.

Consider alternative storage and supply options

Diversification is a great way to avoid risk. When you rely exclusively on one supplier and they experience issues, all your operations come to a standstill. So, it’s important to set up alternative options early on.

Talk to other suppliers who are able to procure the same product and maintain the level of quality you expect. You should look for someone local, even if the price is higher; faster shipping times when your stock is almost empty can balance out that added expense.

Relatedly, you may want to consider storing safety stock locally as well. Although it’ll raise your storage expenses, having that failsafe can prevent a stockout (and the associated sales loss).

Pause marketing campaigns

If you notice your stock is set to empty before your next shipment comes in, you should reduce or completely cease your ad spending. Besides cutting marketing expenses, this can lower the demand for your products enough to avoid the dreaded stockout. Once your inventory is full again, you can restart your ads without the risk of running out of items.

Improve your shipping operations

Review your contract with your supplier and check how it compares to competitors’ offerings. If you find a better deal, like faster shipping, explore that avenue. You don’t have to switch, but you can show your current supplier the other company’s stronger offer to negotiate greater benefits for your business. If they refuse, you can always part ways.

Even if you struggle with negotiations, know that you may have more leverage than you realize. Just as you want a reliable supplier, suppliers like customers who earn them consistent sales. If you’ve partnered with them for a long time, they might be willing to offer better shipping conditions to convince you to stay. Those faster shipping times will help avoid stockouts.

Increase prices

If you already stopped your marketing campaigns, but your sales are still pushing you toward a stockout, consider raising prices slightly. This should only be a last resort, since it might reduce your store’s search results ranking. When done correctly though, increasing prices can lessen demand enough to keep you in stock until your next product shipment arrives. As an added bonus, it also boosts your profit margins for the inventory sold during that window.

Before you raise prices, develop a thorough understanding of the market and current pricing norms. A significantly higher cost than your competitors will need to be compensated through better product quality or other perks, such as a warranty.

Explore funding options

A lack of cash flow is one of the main reasons for FBA sellers to run out of stock. Ordering inventory in advance, then having to wait several months before it starts to sell requires deep pockets. That’s why many eCommerce sellers look for external funding to hold them over until then. This can come in the form of a bank loan, merchant cash advance, or revenue-based funding.

8fig offers several great options that provide the continuous capital needed to prevent stockouts. Having this extra cash on hand enables you to respond to looming stockouts quickly and effectively. You also gain access to 8fig’s AI CFO technology, which helps you oversee your supply chain and plan up to an entire year of inventory shipments ahead of time. Sign up today and take your business to new heights (while avoiding the lows of inefficient inventory).

Wrapping up — Go with the flow (of stock) on Amazon

As we’ve shown, going out of stock is a surefire way to lose sales and customers on Amazon.

However, you can avoid this with supply chain planning tools, alternative storage backups, and better optimized logistics. Follow these and the other tips above to prevent stockouts as an FBA seller and keep the sales rolling.