In this video, Rachel chats with Chelsea Cohen, co-founder and CEO of SoStocked. They discuss the creation of her company and its eventual acquisition by Carbon6, Amazon’s changing inventory fees, how merchants can optimize their operations for higher margins, and more.

Transcript below.

Chelsea’s background

Rachel Andrea Go: Welcome, Chelsea, and thanks for joining today. So, to kick off, could you please share a little bit about your background and how it led to where you are today?

Chelsea Cohen: Sure, yeah. I’ve always wanted to be an entrepreneur. I’ve always been, since I was a kid actually. And so when—you know, I’ve run different businesses, but when the time came to—I learned about Amazon, I kind of jumped at the chance, built a business, started in 2014, and then, by 2018, kind of had some issues with inventory. So [I] was looking for a solution, didn’t find one, and the entrepreneur in me kind of led me to want to solve that problem. And so that was kind of how we came about with SoStocked.

Rachel Andrea Go: Can you tell us a little bit more about SoStocked and that problem that it solves?

Chelsea Cohen: Yeah. To start out in 2017-2018, the problem I was trying to solve was, essentially, how poor inventory planning eats up your profit and affects your cash flow. So that—I had come from—I had once been an account executive at a financial management firm, so I was used to dealing with budgets, with cash flow, and so that was kind of a natural transition for me as far as mindset was: How do we improve this cash flow in this profit problem, and inventory is the biggest expense that you have in your business and the most expensive mistake you can make in your business.

How SoStocked optimizes inventory processes

Rachel Andrea Go: What are some of the features that SoStocked has that ensures you don’t lose any money on your inventory?

Chelsea Cohen: Sure. With SoStocked, we do forecasting or demand planning. So, it’s not just, “What do I need to order this week or this month?” or “What do I need to transfer?” It’s looking at the next 12 months and making decisions, having the foresight that three months, six months, nine months down the road, you’ll be kind of in a sticky situation if you don’t make a change. And it’s hard to make changes quickly with inventory.

So, you have to have that forward look, and without that—and including marketing, including your warehouse levels, your purchase orders, all of those elements that come together — if you don’t have those all factored in, your entire forecast is wrong. So, it’s kind of bringing those all together to have a complete picture and then that picture should extend—we extend for a year in advance to have that kind of forward look.

Rachel Andrea Go: In light of any competitors, what are some of SoStocked’s key advantages for merchants?

Chelsea Cohen: Sure. Really, it is the advanced forecasting, the transparency, the customization, the ability to factor your marketing plans into your inventory plans, and how the forecast—or how the finance side factors in has always been very important for businesses. And there’s been a general progression from—profitability was a lot easier to come by before Covid. And expenses and supply chains changed; Amazon got more expensive, they started limiting the amount of space, and so an industry that was very focused on marketing all of a sudden had to become a lot smarter with inventory and how inventory impacts the forecasting—or, sorry, the finance.

And so I like to call it a three-legged stool where you have those three legs: marketing, inventory, and finance. And if one of those stools breaks, the entire stool collapses, right? You have to have all of those things together, make them work together; otherwise, each leg is affected by the other.

Rachel Andrea Go: Awesome. So, speaking of, kind of, Amazon inventory and those fees and finances, I was curious: What was the most complex challenge you had to solve for SoStocked to be able to account for those changing Amazon inventory fees?

Chelsea Cohen: Sure. The most complex piece that we have within SoStocked is—actually something that we introduced in 2023, just last year, so it’s quite new — is the Overstock fees. This is kind of a blind spot for people (again, not looking far enough in advance). We extend out to a—on a monthly basis. You look at, monthly, what is it going to cost you to have inventory sitting at Amazon? And the reason—it’s always been somewhat impactful because you’re charged every week. You know, the inventory sits there, and something that might have cost you 10 cents on the first month cost you 30 cents on month three, and so on.

Where we decided to get into more specifics on putting the numbers down so that sellers could actually see that was when Amazon introduced something called aged inventory surcharge. And it was introduced in 2022, but the fee structure was a lot less expensive. And so last year, it went from being a flat rate from six months—or from nine months on to a year being a flat rate, and then at a year, going up, you know, being very expensive, to starting at six months and going up every single month. So, at six months, you’re paying 50 cents, then you’re paying a dollar, then a dollar fifty, and then it jumps up to $3.80 and so on. 

And with the new fees that have been introduced today—or, sorry, the new fees that have been introduced in the last month or so that are going to take effect in the next month or a couple months or so, the age inventory fees for nine months have gone up to $5.45 per cubic foot, all the way up to $6.90. So there’s a huge penalty when you—when your fees kick in at nine months. It’s a huge penalty to have too much inventory in stock for too long, and so that piece and how Amazon calculates all of those storage fees is very complex.

So, you have to first understand the fees, how the fees work, how they calculate, and then put it into an annual projection, a monthly projection extending out for 12 months. So that was the most complex piece of inventory and how it affects finance.

Overseeing inventory amid Amazon’s changing fees

Rachel Andrea Go: Very cool. So, just for my own knowledge, was there a difference in overstock fees versus long-term storage fees? Is there a distinction there?

Chelsea Cohen: So, yeah, so, overstock fees we kind of generally use that as a blanket term to cover the fees that have to do with keeping excess inventory. The way that we break it down in SoStocked is aged inventory fees and fees over 90 days. 

[For] aged inventory, we use the definition that Amazon gives us, but the other overstock fees — what we call monthly overstock fees — is our own calculation where we look at total monthly storage fees, which you have to pay; there’s no getting around that you have to pay monthly storage fees at FBA. The difference is, if you have too much inventory—we say 90 days is a good kind of maximum to hit, and you’ll pay less fees the less inventory you keep in there, but the—a good maximum kind of rule of thumb is 90 days, and if you go above 90 days, we call that avoidable storage fees. So, you’re spending monthly, but if you get to having too much inventory, then a portion of that is excess fees because of poor inventory planning.

Rachel Andrea Go: So, clearly, you have a lot of experience and knowledge about Amazon’s fees and their fee structure. So, Amazon pricing has changed quite a bit in the last even, like, eight months. What is your take on Amazon’s increasing fees?

Chelsea Cohen: It’s interesting because the—we’re always used to seeing Amazon fees increase and we’ve had new fees being introduced. The one that people are very concerned about is the low inventory level fee, which is a fee that—it’s not a storage fee.

It sounds like a storage fee, so a lot of people get confused and there are people that don’t understand it. But it is a fulfillment fee, which Amazon charges you when you have too little inventory. So, when they get your inventory, they spread it across the country, and if you have 28 days or less, they are going to penalize you every time you sell a product. It’s a fulfillment fee surcharge, because what they have to do is they have to ship that item further because you don’t have enough in stock. So, they pay express fees and ship it further because they don’t have that extra inventory and they have to meet that two-day Prime.

So that’s just one piece. But the interesting thing about 2024 is that the fees actually—there were fees that decreased, there are fees that increased, but there are fees that decreased. And people are aware of this, but they—I think they gloss over it and they just focus on the new fees that were added: the, you know, the long-term—or, the low inventory fee and the increase in aged inventory, and then there’s this new fee called placement—inventory placement fee, which you can choose to use or not use program.

But I did a study that assessed what—if you have low inventory and if you have, you know, nine months of aged inventory, the impact [on] your business is very significant. But if you have no low inventory fees and you’re only holding three months’ worth of inventory, the impact to your business is such that you’re actually paying less this year than last year. And that’s not being talked about, that’s not being understood and represented. Your profit margins should increase this year with proper inventory control. So inventory is everything in this business.

Rachel Andrea Go: You wrote a white paper with Vanessa Hung for Carbon6 on navigating Amazon’s increasing fee stack. So, what are your—what are the most important takeaways from that?

Chelsea Cohen: Yeah, so, I think the most important is first to understand the fees enough so that you can make decisions and to understand that there are ways to avoid fees, there are ways to, you know, reduce fees, and there are ways to offset them. So you have to become quite strategic, especially in terms of your supply chain and your inventory management, because it can get very expensive like we say, but it also can be more profitable. So, I think the big takeaway is to plan for—to plan your business for profitability and not just for revenue.

Carbon6’s acquisition of SoStocked

Rachel Andrea Go: So, speaking about Carbon6, SoStocked was acquired by Carbon6. Can you kind of share more about SoStocked’s acquisition journey?

Chelsea Cohen: Sure, yeah. So, we were not looking to be acquired at that time. We were looking at fundraising and fundraising outside of venture capital. We were—and we actually had people who were waiting to invest; we had reached out to the seller community, and that’s where we were looking for our funding. And so, some of our users—some of our sellers that have used SoStocked have used us since the beginning, or since [the] beginning of 2020. We launched in 2019, and they’ve seen the growth and they’ve seen how we’ve worked with sellers as really a partnership and taking their feedback and implementing it and so it’s lended confidence and they were ready to invest. 

But at the same time, Carbon6 was growing and was acquiring businesses and SoStocked was mentioned a couple of times — I think about three times — from different sources to Carbon6 and to Justin, the CEO. And so he came and visited me at an event, and we started talking and they were going to lead the round. But the more we started talking, the more we understood that being acquired was actually the right choice. It gave us the opportunity to have more resources and to really do what we wanted faster than we would be able to do it on our own.

Rachel Andrea Go: Was access to more resources and then speed of launches the main deciding factors in the acquired versus raising a round?

Chelsea Cohen: I think that the main factors—one was the people. To understand what the vision was, which was—we talked to other companies who wanted to acquire us, and there was a little bit of a disconnect between the company and the strategy and the community, and not understanding what that community—the impact of that community had. And so, when I spoke to Carbon6, the first question I asked was, “Who are your advisors?” And they started naming people that I knew that were very smart and successful in the industry, thought leaders, so—and that they were keeping their founders on. That strategy in itself and that—the confidence I had in those that I would be working with had a huge impact on making that decision. 

And I think the…kind of the top—the cherry on top was really kind of the biggest deciding factor: I knew that either I was going to be on their team or I was going to be competing against them, and they were going to acquire an inventory tool. And that in itself—just asking myself that question — and I think that’s important for anyone who’s being acquired — is: If you have competitors in your space, would you be more nervous to work with them or to compete against them? And so there’s a lot of things that made a lot of sense with working with them. We were excited about it. 

But that was kind of the other question that I asked myself that helped me to understand what my thoughts and feelings were because there were some, you know, aggregators where I looked at it and I was like, “I don’t think I’m really nervous to compete against them. I don’t know that I feel confident in what they’re doing and how they’re approaching the market,” and that sort of thing. And that’s kind of proven out in that Carbon6 is—you know, there’s no one doing what they’re doing as well as they’re doing. And so to be part of that team has been exciting and having that support and having those resources and just a bigger game with a—you know, it’s not just me and our 20-some-odd people that we had working with us. It’s, you know, a lot bigger.

Rachel Andrea Go: So, you shared kind of why you were excited about Carbon6. Can you share some of the big reasons that Carbon6 was most excited about acquiring SoStocked?

Chelsea Cohen: Sure. I think that, first and foremost, we had—it was reputation. We were first to market, to really do what we were doing, and we had a lot of community support. We still are the number one name in inventory management. And, you know, I was talking to someone the other day and asking about their tech stack and that sort of thing, and the first word out of their mouth was, you know, for inventory, was SoStocked. And that generally tends to be—you know, we tend to be the most well known, and that reputation was a big piece. 

But even more so, I think that it was who they were bringing on. It’s not just the software that’s built; it’s the minds and the founders behind the softwares that are acquired that Carbon6 invests in, you know?

It’s not just—and this is with any business that is being acquired — it’s not just what you’re doing now, it’s what are—what is the three-year, five-year return on that? How quickly can they make their, you know, investment back, and what is that growth strategy? So, we had a lot of plans and expressed, “This is where we want to take things.” Not only was that helpful for us to get the reassurance that they wanted to go in that direction and they were happy to support that, but it was also that they were excited to see the possibilities of growth beyond where we were at already.

SoStocked’s journey to launch and growth

Rachel Andrea Go: So, speaking of growth, how did you choose which features to tackle first and then second and then third for SoStocked?

Chelsea Cohen: Yeah. For SoStocked, the first thing that we learned — and it’s funny because we built the tool and we launched it to about 25 beta testers — there were things that were missing from other tools that we had tried. There was really—sellers were…I asked sellers, I said, “You know, I’m looking for something for this.” This was in 2018. And the answer kept coming back: “We’ve tried everything. Nothing out there is good. We’re back to using spreadsheets.” So, the question was, what is it about spreadsheets? If a software can do it or if a spreadsheet can do it, a software should be able to do it better, but it wasn’t. No one was doing it better.

So, in terms of how to figure out what to launch, there was my own experience, but then, even more valuable than that was talking to the sellers and getting them to open up their spreadsheets and say, “This is how I do it, and this is what works and this is why I want to do it this way and this is the data that makes sense that helps me to make those decisions.”

And to find that out and really dig into the formulas that they were using but also then to ask them, what’s not working? What do they want to do better? And seeing that one of the things that couldn’t be seen by exporting reports or was very complicated to actually build was stockouts and sales spikes. If you’re looking at an average — 60-day average or whatever you’re looking at — if you stocked out for eight of those days, your entire average is thrown off. So, you’re operating on bad data. And so that was kind of the first piece.

And then the second piece was that marketing plans were not incorporated. The marketing team was not talking to the inventory team. I had a friend—I have a friend who had said, you know—he said, “I do marketing and my wife does inventory. And you’re right, we don’t coordinate.” They, you know, they sleep in the same bed but they don’t coordinate, you know, between them. And so the—before 2020, before Covid, the number one reason people stocked out was because they marketed themselves into a stockout. So, I knew that marketing had to be part of the story that you tell with your inventory planning.

Rachel Andrea Go: That’s awesome. So what I’m hearing is SoStocked prevents merchants from having inventory that’s too low, or inventory that’s too high. And it’s just the right sweet spot, which is very fickle, I hear lately.

Chelsea Cohen: Yeah. I mean, you know—you can’t predict. And one of the interesting things about inventory is you can’t predict what’s going to happen in the market. You can use the data that you have but you can’t really predict it. But you can get better data and data that is actionable and you can, with that data, pivot more quickly.

So, one of the things we’re doing now is forecast adjustments. Looking at—we call it “Forecasted versus Actual” report. If I can see on a weekly basis what I forecasted and what actually happened and see what percentage of accuracy I have — was I too low in my forecasting? Was I too high? — and make those adjustments. So, that’s kind of one of those things is—but we don’t have that crystal ball, but we have the ability to kind of see and use smarter data.

And as far as the crystal ball analogy, we have the ability to see what is happening now, and if that keeps happening, or if you have, you know — we have seasonality that gets looked at and all of that — if that keeps happening, what is it going to cost me? So, we don’t have a crystal ball, but we do as far as fees, as long as, you know, we’ve forecasted out. So, making those changes based on the data and then also looking at financial impact and course correcting on a weekly basis versus a monthly kind of look back or continuing on for three months and then realizing how much you’re losing in fees.

Find your pivot points

Rachel Andrea Go: So, you touched on this a while ago, but with, you know—predictably, we can expect Amazon fees to continue to increase in at least some places. So, what are a few areas that merchants can optimize their operations or their processes to help increase their margins?

Chelsea Cohen: Yeah, so, definitely the inventory side of things—inventory and product size. If you can reduce the size of your product, it affects a lot of things: It affects your fulfillment fees and it affects your storage fees across the board because storage fees are based on cubic feet.

So, we have an audit that we do as part of what we call our Profit Audit, and it’s free. You can go to Carbon6.io forward slash profit audit, and we’ll do this assessment by looking at your data, and one of the pieces is product resizing. It’ll look at your fees — what are you being charged now? What are your fulfillment fees? What is this—the tier, the fee tier, and how do you get into that lower fee tier? And how much is it going to save you on an annual basis? So, that size is a big element, so I would look at the size. 

Sometimes Amazon scans your stuff wrong. So, it might be that your product is being—you know, has been sized up by Amazon. So you can request a re-measure or you can go back to the drawing board and work with your supplier to package it differently or to design it differently, right? My friend Homer Rabinovich has an example that he shares in one of his presentations where he takes a product and completely resizes the product and is able to move it into, like, several sizes down. So, it’s not just, you know, “Let’s move into the lower-sized tier.” You can have a huge impact on your fulfillment fees and your storage fees if you can downsize your product.

Rachel Andrea Go: Looking back in 2023, there have been so many changes. Are there any that stand out from last year that you think will have the most long-lasting implications in eCommerce?

Chelsea Cohen: Yeah. From last year, it really has been the aged inventory fee. And the way moving into nine months has had a significant impact. There—you used to be able to keep inventory there for much longer.

And, especially with seasonal products, I’ve talked to sellers who have seasonal businesses, and if they don’t sell out — let’s say they have, you now, swimsuit season or they have back to school or they have  Halloween — if they send in too much inventory and they leave if there for next year—well, if they send—there’s so many different—you have to get it more right than you get it wrong because, if you have a bunch of inventories sitting there, you can wait that entire year, which includes your peak storage fees, which are two dollars and 40 cents per cubic foot, as opposed to right now, it’s 87 cents. It’s going to be 78 cents, but 78 cents versus, you know, two dollars and 40 cents per cubic foot during that peak season, which is Q4, and then you have higher fees and then you keep it in there for an entire year — it’s costing you a lot of money. So, you either keep it in there or you remove it and try to sell it elsewhere.

But removal fees are very high now. They used to be—I remember when they were 20 cents per unit. And now, when you remove, let’s say, a pillow, that pillow is going to cost you, like, $11 to remove. It’s, yeah, it’s because they have something called dimensional weight. Dimensional weight in 2022 had a huge impact on larger products because, instead of just using size tiers and the actual weight, they started doing billable weight or dimensional weight, which we don’t have to go into detail; I think most people understand dimensional weight now. But it’s taking the size of something and saying, “Because this is bigger, it’s going to take up more space on the truck. So, even if it’s not heavy, it’s going to have to be charged more because I can fit less of them in the truck.”

So, removal fees got more expensive, fulfillment fees got more expensive, and so that has been a huge impact. And so, having to remove product — especially, like we said, a seasonal product — having to remove that product is so expensive that it almost isn’t worth it. So, you can either keep it in there, pay a bunch of storage fees, remove it, or liquidate it. And none of those are good decisions to have to make. So, you have to be a lot smarter with the way that you handle your supply chain.

With seasonality, it’s a bit harder, but it is—it becomes easier when you have that past data that you’re operating on and you have a trend that you can apply, which are some of the tools that SoStocked has. One of the other factors is, how are you storing your inventory? You know, talking with a seller who, if they make this pivot—and a lot of sellers don’t understand there are pivot points. They feel kind of trapped, they go, “Well, you know, Amazon is going to charge me more fees, so I’m just gonna have less profit margin,” and that’s exactly the wrong way to react.

So—but, you know, people say, “At the beginning of the year, this year, I’m going to be more profitable. I’m going to really get good at inventory.” But then, not having a system or a strategy to, from the ground up, rethink your entire supply chain. Because it’s not just forecasting. There’s—you know, if a seasonal seller uses—Amazon has something called Amazon Warehousing and Distribution. Amazon Warehousing and Distribution used to be not so much expensive but used to be more faulty, and so, you know, people didn’t use it.

It becomes really smart to have your inventory closer to different locations, right? Same thing as low inventory, the low inventory level fees. You’re having to express things across the country. People, you know, store their inventory in different locations — let’s say in one location and they have to ship them to Amazon to three different locations. So, having that spread, we’ve seen that it’s gotten a lot less expensive to be able to do that. 

Rachel Andrea Go: You mentioned pivot points and this is a really interesting concept. So, how would you suggest merchants find their pivot points and execute them properly?

Chelsea Cohen: Finding pivot points…. Yeah, first, it’s to—there’s two places: really, it’s supply chain and inventory forecasting; understanding not just, you know, business as usual and actually understanding your supply chain and understanding [that] wherever it exchanges hands, it’s going to cost you, you know? Your supplier ships, you know, to the ocean freight, goes to a warehouse, goes to Amazon, it goes to the end user. To track each of your expenses and to see what is each one costing you and is there an ability to reduce that cost? Whether it’s if you’re using a freight forwarder and you use the same freight forwarder and you’re not getting other quotes from other trusted freight forwarders, that’s something to start looking into. 

Prices change over time, so you can’t assume that the rest of the market is changing together in a similar way. You know, we’ve had conversations with sellers who said their fees went up with their 3PL, but they went up more than another for 3PL. So, you know—and then looking at, again, fulfillment fees and looking at, you know, how do you assess those different points within your supply chain? How do you assess the storage side of things? So, I think those are the two pieces—places. It’s just all of the changing of hands of your inventory. And then storage, you know? How long are you storing? How are you ordering? How are you forecasting? And having the right data to be able to do that.

Boost profit margins with robust inventory management

Rachel Andrea Go: What are you most excited about for 2024 for eCommerce merchants?

Chelsea Cohen: 2024…I would say that I’m most excited about the possibility to improve your profit margin in a big way with inventory, proper inventory control. To know that you can actually—even as people are saying fees are increasing, to know that fees don’t have to increase for you if you don’t have low inventory levels and you don’t have aged inventory — that’s exciting, because we’ve never really seen fees go down.

And I think that that kind of gets, you know, like I said, lost in the noise of fees going up or new fees being introduced and not doing the math. So doing the math and having more—there’s a term, unit economics, [which is] understanding how much each unit is costing you, and there’s nothing out there that is doing that right now. So, I’m excited about exploring that.

Rachel Andrea Go: Very cool. So, what is your advice for founders who are building their own products in 2024?

Chelsea Cohen: I would say, you know, to start with profit in mind to really dissect from the beginning, “Can I make this product smaller?” My friend Afolabi, who is co-founder of Honu Worldwide — he does sourcing and he talks about, maybe the material is a higher material that is costing you a higher tariff to move into the U.S. Maybe if you change the material, you could have could go from 25% cost, 25% tax to 10% just by kind of changing the product, understanding what the fee is from the beginning, and if there are some ways to, you know, like — pivot points, as we say — there are some ways at the beginning, and then understanding each element of how do you squeeze more out of every dollar in terms of profit?

So that would be my advice to founders launching products and then founders who are running businesses and scaling businesses. You can’t scale without profit and cash flow, so breaking down each element of your cost centers will help you to understand how you can scale by getting back some of that profit.