How Consignment Inventory Model be made Profitable
Consignment inventory (CI) is a model wherein the product ownership is with the vendor until the product is sold by the retailer (consignee). The retailer does not own the inventory at its locations, inventory is owned by the vendor itself. Additionally, unsold products can be returned to the vendor.
For e.g. a new bag brand breaks into the market and is totally unknown. Since they are new, no retailer would like to risk their capital by purchasing their stock upfront. Instead, if the brand plans on offering the bags on consignment, the retailers might agree to stock the bags in their store and pay once the stock is sold. This creates a win-win situation for everyone. Such a model is useful for even established brands as retailers try to minimize their working capital.
The consignment inventory model works well in the following scenarios:
- New brands breaking into the market
- Existing brands Introducing a new product line
- An existing brand trying to expand into newer markets
- Expensive goods that retailers wouldn’t want to invest upfront in
But consignment business isn’t that straightforward. There are factors that both parties must consider before getting into the consignment contract.
Important factors to consider before starting with consignment business
It might sound a lot easier to handle the goods on consignment from both sides. However – remember there is no free lunch ever. Let me explain the complications involved and things to remember. Following are the points you need to take care of before getting into this business:
- The time span of holding the inventory for sale
- Payment terms for goods sold
- Who will be responsible for products security when stored in the retailer’s location?
- Who should be responsible for shipping charges for returns of unsold products?
- Who should be responsible for products damage?
- Commission structure or margins to be shared with each party
This can sometimes carry major risks for both parties. Let us look at the pros and cons of consignment arrangement:
Pros and Con of Consignment Inventory
Pros for Vendors
– A supplier can invest money for long term on the stock if a retailer is not ready for the same and assign it as consigned inventory.
– Entering the market gets easier, as consignment inventory allow vendors to hold the ownership of inventory and can contact multiple retailers to carry their inventory in the market.
– Inventory carrying cost can be reduced, as the vendor here can transfer the stock to retailers shop which will result in reducing their own holding charges.
– Can save on labor charges and shipments, where the vendors can get the stocks delivered directly to retailers instead of shipping it to their own warehouse.
Cons for vendors
– Inventory holding charges, the vendors here have to invest their money in shipment and carrying charges for the inventory with which they are not sure of making any profits.
– Bear damaged and unsold inventory charges, the vendor has to bear the charges for damaged and unsold goods even if the stock is under the retailer’s supervision.
– Fluctuating cash flow, the vendors here normally receive their payment after their products are sold. Unsold products are normally returned back to vendors.
Pros for Retailers
– Reduced carrying cost, the retailers here can have the inventory without having the stocks in possession. This reduces their holding charge.
– Cashflow flexibility, the retailers only pay their vendors once the products are sold. They can always hold as much consignment inventories without worrying about the stockouts or buying more stocks.
– Low risk, as the retailers do not have to pay for the stocks upfront, this allows them to lower their risk of carrying new supplier brands and use their capital in selling more valuable products.
– Never go out of stock, as the vendor keeps a check on the retailer’s store. If the products go sold out, they bring in new stocks. This reduces the workload on the retailers part to keep track of inventory levels and plan replenishment.
Cons for retailers
– Reduces the floor usage, if the consigned inventory is not sold for a longer period, it eats up the floor space which could be used to store other fast selling stocks.
– Inappropriate management between consigned and other inventory, as some retailers might manage their consigned inventory and other inventories separately. This creates confusion between the stocks and may eventually result in errors and inventory loss.
– Stock ownership is held with suppliers: Since the stock ownership is with the vendor, they can always plan on taking back the inventory from their store. Additionally, there is a dependency on the vendor to do the replacements. Hence the retailer has very less control and might face out of stock situations for fast moving goods.
With positives and negatives involved with both the vendors and retailers business, we will later discuss how can this business be made profitable for both the parties. But, before that, I want you to understand a closely relatable term with consignment called as – SOR (Sale or return).
SOR or Consignment (What do you prefer?)
SOR (sale or return) and consignment model is almost the same. The difference is just with the ownership of goods after the products are shipped from vendors location to the retailer.
In SOR, the ownership gets transferred to the retailer whereas, in the consignment model, the ownership remains with the supplier (vendor) until the goods are sold.
During an agreement between the two parties in the SOR model, a time period is mentioned to make the sale. If the retailer fails to sell the given products at an agreed upon time span, the products are then returned to the supplier. Depending on the stickiness of the product, it can be good or bad for both parties.
Read this article by Clare on The truth about Sale Or Return which will make you think twice before going for SOR / Consignment business.
Factors making consignment Inventory business model profitable
It is always great to learn the tricks that can be used to develop a profitable business. Check the below strategies that a vendor or retailer can follow to get rid of financial issues and develop plans to grow the business.
Prepare a strategic plan with 3-6 months goal:
Normally, few consignment agreements have an effective period of time and some others don’t. After the agreed-upon period is over, the unsold goods can be returned back to the vendor. This period can be extended with mutual understanding between the two.
With businesses taking time to build their trust among customers, both the parties can apply their plan and marketing strategy to grow over time.
Once the sales start to happen, the process will get complex and the production will increase. With a growing business, both the parties also need to plan their financial strategies, profit sharing and commission percentage. Which means the strategy does not only involve the money making process but also the marketing, profit generation, and the capital investment. Being a retailer or vendor you must constantly be reviewing the plans. That way you will be able to achieve your goals within time.
Identify factors affecting profitability
While working together, vendors and retailers get to know each other and develop an honest relationship with each other. Their supply chain relationship also gets stronger with time as the processes get more streamlined and systems get aligned. The vendor here gets a trusted retailer, selling the consignment inventory efficiently and the retailer gets a supplier who can maintain the inventory on time with a proper quality process in place.
Vendor and retailer need to have an integrated system in place for the consignment business to be successful. That provides visibility of sales run rate of various products and also visibility into damaged/lost inventory reports.
Identifying non-moving inventory
These type of products often eats up money time and space. There needs to be a plan and data sharing between the parties to find such items and they must be dealt with urgency. Nothing hurts more in retail than the dead inventory at stores. Removing stuck inventory and replacing with faster moving goods will enable faster turnover and hence more money for both parties.
Special consideration has to be given for items with a limited shelf life. Deadstock for SKUs having an expiry date coming up need to be cleared on priority. Hence special promotions or price discounts must be offered in consultation with the vendor in order to clear such items.
Consignment model friendly application
Supply chain management relationship between the vendors and retailers in consignment inventory business is not possible to manage with excel sheets/manual entries with a pen and book or on normal inventory managing software.
One has to opt for software having consignment inventory as a feature where:
- Consigner is able to track the consignee’s inventory
- Consigner must have near real-time sales visibility in order to plan replenishments to avoid stock outs
- Any surge in sales activity for certain SKUs must generate an auto alert for both parties
- Consigner should be timely updated on what goods need to be shipped
- Consigner should be able to track the shipped stock to the consignee
- Consigner should be able to track the shipped stock to the consignee
- These process can be made simpler and quicker with an integrated platform.
How your consignment inventory management workflow can be simplified?
Let us hear it from Jack about his experience with EasyEcom to manage his consignment business,
Using robust software like EasyEcom to manage your consignment inventory model will help you maintain a profitable business in the long run. It will help both retailers and vendors to have transparency in business. Check the EasyEcom platform below to manage your consignments.
1. Manage multiple customers from a single window:
Being a vendor, you will have to deal with multiple customers from different locations, selling multiple goods. So go ahead and add as many customers under your business and deal with each of them your own way.
2. Create a returnable gate pass to keep track of consignment inventory sent to various parties
If your goods remain unsold for long, you can always provide an option to your customers to return or transfer and do the in-house adjustments.
3. Create passes as per return request
Once you create an adjustment there will be a gate pass created against every selection. This pass can be used as an entry or exit for the selected products.
Find a returnable/consignment gate pass created below.
4. Upload sales and create invoice against a gate-pass:
Once the gate pass is created, the consignee can upload the sales made against that particular gate pass. The consigner can then create and send the invoice against the same gate pass number. This process can be carried on monthly, weekly or any customized interval basis.
Now that you know about consignment inventory model, you can plan your retail business in a comprehensive way. An integrated platform will surely enable the proper planning and hence profitability in the long run. Staying systematic and having proper trackers in place will enable transparency which is a must in a consignment business model.
Cross-Border eCommerce benefits – how to prepare for risks
Every growing brand dreams of becoming a global brand like Nike, Reebok one day. Now that’s easier than ever with growing cross border eCommerce. What Nike did in almost 50 years, internet first brands are doing it in a couple of years by riding the eCommerce wave.
Brands sitting in China and India are selling in the USA and European markets like there is no tomorrow. Some of the fastest growing brands globally don’t even have any physical presence anymore. Amazon and eBay are fueling that international growth for brands.
Regional eCommerce marketplaces like Lazada, SOUQ, LINIO, Flipkart, PayTM provide massive opportunities for brands looking to expand their business globally. If you are a brand having an ambition of growing rapidly, timing cannot get any better to start exploring these opportunities.
In this article, we will talk about how to prepare to go global. We will end with a check-list for you to circulate with your team.
Remember, your summer might be someone’s winter and your winter might be someone else’s spring (hint for fashion brands 😉 ). Staying ahead of your target country time would help you in long run. If you are a brand dealing in beachwear, why restrict yourself to 2-3 months long season only. There is always summer somewhere on this planet.
From a consumers perspective, Cross-Border e-commerce now allows them huge selection that was earlier not possible. Now manufacturers sitting in China can showcase their entire catalog rather than depending someone like Walmart to only sell selected items. Obviously, there are numerous challenges to be able to sell in the US for example for a Chinese brand that earlier only did white label manufacturing for Nike or a retailer like Walmart. Granted, it has become simpler with Google’s translation feature to communicate well in native languages. Still that doesn’t make it 100% straightforward, there are many more things to worry about. We will talk about some of these challenges in this article.
Without wasting any more time, let us dive deep into what a brand or seller requires to go cross-border.
Are you ready to sell Cross-Border?
You should always be prepared for what is coming next. Before jumping into a gigantic loop, here is the initial set of questions to check if you have the basics in place:
– What amount of investment is required to sell international, how much can you really invest?
[Charges for international shipping: taxes and duties, courier charges (DHL/FedEx/USPS) and extra surcharges involved]
– Is your target market familiar with your chosen product?
[If it is not, then you must be prepared to invest in marketing or on educating customers about the product]
– Are you prepared to handle multi-currency, multi-lingual, multi-tax and multi-assortment sale?
[Check if you are prepared to initiate international currency transactions; do you understand their language or have a native speaker on your end; keep a check on applicable taxes on a variety of products you have chosen]
– Are your resources and company flexible enough to handle the initial phase?
[Understand the culture and know your customers, build a relationship, try to live temporarily in the country to know your customers and understand their pricing structure]
I suggest you go through the blog post and then decide if your answers were satisfactory.
While you are working through the initial setup related questions, let me quickly discuss major advantages and challenges along with small tips related to selling globally via eCommerce.
Advantages of Cross-Border business
International reach in eCommerce:
The uninterrupted services by the World Wide Web are already helping users to market their businesses across the globe. With multiple online e-commerce websites like Alibaba and Amazon, you will be able to publish your products and increase visibility and reach.
In the below image, you will see the top 5 Leaders competing in the eCommerce industry. The GMV (Gross Merchandise Value) is based on the total value of products sold on these marketplaces. (Source)
Tip: If you deal in niche products that aren’t available globally, you pretty much have hit a gold mine here. Imagine someone specializing in Jaipuri Quilt which is only made in Jaipur, India. Now Indian diaspora is spread across the world. All over the world, Indian people will want to purchase that. If that manufacturer suddenly starts selling in the US/UK besides Flipkart in India, obviously there will be a huge demand. The icing on the cake is the fact that these customers will not even mind paying a bit more to get the product easily delivered vs carrying it all the way from India on their next trip back home.
Increased revenue by selling internationally:
With an international reach, the audience will increase steadily and with that, you will generate more sales and revenue. The foreign website products might seem cheaper and better to customers than in the home market.
Cutting out the middlemen:
Brands which used to rely on partners to distribute products are now adapting direct to consumer sales. In the past, the products were passed between multiple hands, shipping industries, distribution companies/warehouse and as a result products cost used to go multiple times of the actual cost. Whereas now brands can easily setup their stores online and reach their customers across the globe. That provides brands the ability to interact directly with their customers and alleviate the extra charges associated with middlemen.
Tip: Evolution in the eCommerce industry is making it easy for the brands to launch their online stores. Many brands and manufacturers are jumping on to this opportunity hence competition is already becoming fierce. It’s prudent to have a distinguishing factor in your product or marketing techniques. That will help you capture the market quickly.
You also need to understand the structure behind the transactions and the challenges you will come across.
Challenges and their solution with Cross-Border selling
Know about Local Laws and Regulations
– Every country has their unique set of restrictions and limitations based on categories like alcohol, medicines, weapons, relics, raw materials etc. So while shipping products to customers country, you need to meet their regulations to abide by their local laws. For example, there are some products which you cannot ship to
– As a cross-border seller, you must also have all the judicial rights and authorities in place. It’s a must to be on a safer side and having the strength of a legal framework to protect from any legal trouble.
– You can find your country specific shipping details from here.
Tip: The solution here is to know your limitations and country laws before planning to expand your business. So research extensively before you select a country to expand into.
Payment Methods for Cross-Border transaction
– Having a strong payment system is a basic requirement in the e-commerce industry or while dealing in any cross-border business. Check out Paypal, Payoneer, Stripe and choose what works for you.
– Furthermore, there is a possibility of coming across fraud cases in few transactions. Payment might get rejected or the third party application may charge you extra. Having a strong reconciliation in place and identifying such instances early on will be a lifesaver.
– You need to properly safeguard the customer details stored on your website. Hackers can reach your servers and steal customers usernames, passwords, credit card numbers, and so on.
Tip: Ensure your system is PCI (Payment Card Industry) compliant. Accept payment in methods that your customers prefer. The credit card is globally preferrable method to pay for e-commerce transactions. Some of the third-party applications include Payoneer and Paypal.
Logistics & Warehousing Support to sell internationally
– Another main strong point you need to develop is with the logistics part. With a quality product, your strong logistic support will also help you gain trust and make the buyers your repeat customers.
– With this, you need to take care of forward and reverse logistics and make sure the logistics charge do not exceed a reasonable limit. The logistics charges include customs duties & documentation, delivery charges, international shipping if you are drop shipping.
– The main challenge here is with customs clearance, paperwork submission on time, multiple carriers, security of the shipped products, delays due to bad weather etc. So plan in advance and have contingency plans in place. Also, strong communication with the customer will go a long way here, we will discuss that below.
Tip: Contact third party delivery companies like UPS, DHL, NZ post, Royal Mail, etc. Because of the competition
Communication gap with international customers
– Communication gap with customers is because either you do not know their language or is not having a local contact number to communicate.
– With the networks being spread wide, there are more channels of communications opening up. Whatsapp, Wechat, Skype, Google chat etc are becoming increasingly popular ways to interact with your customers.
By now you must have got a good sense of what is required to start selling globally. Now let us see if you are actually ready to go cross border:
Are you ready for Cross-Border eCommerce?
With that being known now, you need to make your systems and processes ready to interact with domestic and international customers and avoid the manual tasks as much as possible.
If you sell on multiple platforms like, your online store, Amazon, eBay, Walmart, Flipkart, etc, you will need to use a system which can help you with multiple requirements.
Your requirements should have the following:
- Inventory management for multiple marketplaces
- Multi-currency support with transactional capabilities
- Easily customizable system
- Logistics partner integration for Domestic/International shipments
Now that you are aware of all your requirements, start your research and get ready for some action with international customers. Furthermore, Get a virtual phone number and email ID of the country you are planning to serve in, this will provide your website with some benefit in local ranking. Also, hiring a native speaker wouldn’t be a bad choice to go with.
Click here to download the checklist for Cross Border eCommerce!
Magento, Shopify, Amazon with best
Purchase order Software
When retail was offline, once a month or quarter purchasing worked. Customers would walk into the stores and buy whatever is available. eCommerce is exactly the opposite in nature. Customers come to your site expecting a certain item to be available. If they don’t find it, It’s not only the loss of business for you, it’s a reputation that the customer carries about your brand.
Managing purchasing has become extremely critical now. Without an efficient process in place, you cannot grow your brand. Amazon has now set a benchmark for companies to manage their supply chain with utmost priority. While the excess stock is going to kill your working capital account, out of stock upsets the customer like none other.
The main challenge with eCommerce business is the necessity of having the right products available at the right time and in the right quantity.
Let us see how inefficient management of purchase order system can affect your sales, ranking on e-commerce websites and more. Let us see how:
Challenges with Purchase Order Management for Amazon and Magento /Shopify powered eCommerce brand portals –
1. Sales momentum loss due to out of stock on Amazon, eBay etc:
Portals like Amazon favor brands or sellers who have inventory available whenever a customer wants to buy. Like I said above, otherwise, it leaves a bad taste in the mouth for the customer. Hence its very important for eCommerce managers to keep track of products with fast sell-through rate. Obviously equally important is to track products that don’t sell well and end up being dead stock. Without any detailed reporting of fast-moving products, you will always end up ordering at whim.
Tip: Consider using an inventory system that auto-suggests how and when to place orders with vendors. It must take into account previous sell-through rate and be able to predict ahead.
2. Losing rank as a seller:
eCommerce is all about consistently delivering quality items within the given timeframe. A happy customer is a customer for life. Hence if you go out of stock for a few products on Amazon and don’t replenish in time, it will hamper your seller account rating adversely. Not having an idea about when to order particular product results in losing your ranking on marketplace platforms like Amazon, eBay, Flipkart etc. Very simply Amazon pushes such sellers down in the ranking algorithm.
Like the above screenshot shows the Amazon sales rank of a product. There were 6 units sold in the first week, and then there was a sudden drop in the sale. With a drop in the sale, Amazon sales rank also drops slowly. (Source)
Tip: Look out for a PO system which can notify you on reaching reorder point of a particular product. Additionally, the system should be able to calculate the time taken for the delivery to reach your warehouse and factor that in the algorithm.
3. Limited storage for brands in Amazon FBA Warehouses:
FBA provides limited storage for brands and having stocked it up with slow-moving products will result in less space for fast-moving products. That might result in a stock out-situation for your must-have products. Again it will adversely affect your overall business. On top of that Amazon storage fees are usually very high as they only store items that move.
Tip: You may consider having a secondary storage warehouse beside FBA. That way you keep the FBA location available for whatever stock is selling fast. Secondary locations are usually cheaper, hence end up saving quite a bit on the storage costs levied by FBA.
4. Unable to track products en-route delivery:
There are circumstances due to which the delivery might be delayed. This can be either due to national holidays/adverse weather conditions/human error. Tracking that is important and accordingly must take actions to manage inventory at the warehouse.
Tip: Consider using a system which can help you keep a track of your delivery partners or reach out to delivery services to check the issue and keep customers updated with the updates.
5. Not staying updated with the expiry date of perishable products:
Dealing with perishable products is tricky for any business from an inventory management perspective. These short-lived items require express delivery. For example, food items, medication, cosmetics or anything else that has a short expiration date, requires special consideration while ordering inventory and shipping to customers.
You must keep track of the expiry date and use
Tip: There are expiry date trackers wherein you can be notified of the products reaching their shelf life. Consider updating it in the tracker along with the product while inwarding.
6. Failure to track stock levels at Freight Forwarder or any interim storage:
If you are importing goods from China / India or any other country, you must have a view of what stock is lying with the freight forwarder. Otherwise, you end up ordering more. That stock must be tracked and handled on a need basis. Freight forward might be able to also do inspection and QC on your behalf. Hence very important to have detailed inventory management there.
Managing all these and coordinating with various stakeholders is a challenging task and calls for a system that can aid in the process. In this article, I am going to talk about EasyEcom solution for inventory holders, Manufacturers, wholesalers to manage their stocks/PO/GRN’s/Reconciliation.
Read further to know more on how EasyEcom can be helpful with resolving all the challenges involved with Purchase Order Management:
Best Purchase order generator software features:
1. Barcode generator for products
Generating Barcode for products is one of the primary things which brands do in-order to track their inventory. EasyEcom helps you in generating barcode and barcode labels, and also stores all the necessary information. This usually helps the product to have a unique identity.
2. Serialize inventory
Inventory serialization helps keep track of individual units using unique serial numbers. Expensive items such as jewelry, mobile phones, laptops etc need more detailed tracking to ensure no inventory shrink.
It is mainly a system generated unique serial number assigned to each item during the inwarding process. EasyEcom platform supports this feature in its enterprise edition.
3. Ability to handle multiple vendors for your product lines
Create, manage and track your vendor list from a single platform. With the help of EasyEcom PO system, handle multiple vendors for the same item along with their pricing structure. This is to make sure you receive your products at the best possible price.
4. Handling multiple currencies and manage Purchase from different countries
If you deal in more than one currency and purchase product from suppliers in other countries then, EasyEcom helps you create the purchase order for international suppliers in their currency.
5. Multi-stage, multi-status, multi-party Purchase Order system
Most companies usually require a staging system to handle purchasing. Purchase plan is usually made by the warehouse team and the finance department approves it. Any system should be able to handle that. In EasyEcom, the approval process can be configured before submitting it to the vendor. After you create a PO successfully, you will be asked to approve the created PO wherein you can check if the right quantity of product is going to the right vendor.
6. QC process at inwarding
Quality Check at
The vendor either refunds the amount of those 10 bottles or send you extra 10 quantities in your next order.
7. Keep a track of products with expiry dates (Perishables)
The concept followed here is FEFO, that is the products with early expiration will be sold first. It is useful for food & pharma companies dealing with the products having a strict shelf life. So to stay stocked up with fresh products in your inventory, EasyEcom helps you keep a track of products nearing their expiry dates. By updating expiry dates during the inwarding process, the system allows you to apply FEFO on these products.
8. Shows suggested quantities to Manage Purchase
With not being aware of quantities to purchase for future sale, the inventory forecasting feature with EasyEcom will suggest you the quantities you should purchase based on your past sale.
For e.g. The system will provide you with the suggested quantities to fill your inventory based on the previous monthly average daily sale or previous season sale. In addition to that, the time taken by the vendor for delivery will also be calculated and factored in.
9. Shipment Tracking
Tracking incoming shipments is equally important in the procurement process. As the products move out of vendors location, until it reaches the buyer, there are plenty of things that can go wrong. Especially when there is no contact or update provided on delivery, it can create complications for the sales team. EasyEcom tracks the tracking number for the incoming shipment and provides options to update the status as the items move along.
10. Get notified when a product reaches its reorder point
Receive system generated notifications on your personal device once a product reaches its reorder point and stay updated with your inventory in order to avoid losing on sales. Here, the sales teams will be made aware by the alerts based on the reorder points for the given SKUs.
The best part?
EasyEcom has easy integration with Magento/WooCommerce/Shopify/Amazon etc…
An automated system like EasyEcom can help you generate an error-free purchase order in a fraction of time. Evidence?
Consider use case of an existing EasyEcom client who uses Purchase Order management to grow their sales.
Luffy pets, being one of the best stores for providing best care foods and toys for our pets have started using EasyEcom to improve its perishable products sale.
Luffy Pets buys pet products from its multiple vendors spread across different countries. The major challenges which company had come across are,
1. Delay in shipments:
Shipments used to arrive at vendors location later than expected, which could either be due to national holidays or bad weather conditions. Because the vendors were not provided with any tracking number of courier services, Luffy Pets had to answer multiple calls if the package doesn’t get delivered on the expected date.
Solution: EasyEcom provided an option to update AWB number with courier service details in Purchase Order approval form. With this, the Package can be tracked on a timely basis and can be coordinated accordingly through courier service directly.
2. Managing expiry dates for perishable products:
The company deals with perishable products on a daily basis. Fresh food, meat, chemicals, and pharmaceuticals are examples of perishable items that used to get spoil or become unusable after some finite time. They had issues with managing similar products with different expiry dates.
Solution: EasyEcom helped them update the expiry of a product during inwarding process and apply FEFO process on these products at the time of shipments. This helped them save a lot of time and products from getting spoiled.
With the upgrades in technology, let us now see how the Purchase orders were managed when there was no system to work with. How this process was manually taken care of.
Comparison of Purchase Order Management, manual v/s automated:
It is important for you to know that it is never late to get started with an efficient procurement process. If you feel like your business needs control of its expenses and improve its profit, then an automated cloud-based system like EasyEcom is a solution for you to keep an active eye on your business growth.
Save over 10-15% on Amazon Business by Inventory Reconciliation
After sending your products to Amazon FBA, do you cross-check if the right quantity is being received and the whole stock has been put on for sale?
If No, you are about to get a lifetime shocker. If yes, then well and good, read further to get a clear picture.
If you aren’t keeping up with the missed products and think that Amazon would notify you on that issue, let me inform you that Amazon doesn’t always disclose when any of your products go missing or is damaged. Or even when it does, it would do in a very convoluted way. Half the Amazon sellers won’t even understand such complex reports.
Before you open up your Amazon account and check the status of your inventory, please read further to know how I got my reimbursements from Amazon with a similar case.
Firstly, it is important for you to know that Amazon owes you for the following,
– Lost and damaged inventory from the warehouse
– Orders where the customer has been refunded but you have not received the product back in stock.
– Products lost or damaged while being received at FBA fulfillment centers.
What number of my Amazon products were facing the discrepancy?
Below is my Amazon report of 4 SKU’s where the data has been provided for product discrepancies and how much amount I was supposed to claim from the marketplace.
If you see the above excel sheet, you will find:
– For SKU, ABC-001, I had sent a quantity of 20 wherein 16 were sold, and 2 were lost in transit and the other 2 were damaged in the warehouse. So, I requested a refund for 4 of these products.
– For SKU JIL-002, I had sent a quantity of 30 and FBA received 26, later they were able to find remaining 2. However, the remaining 2 units were lost in the warehouse and a claim has been raised.
– I had sent 50 units of SKU, MID-003, to the warehouse. Here they could receive only 40 units. Later they were able to find 4 and remaining 6 were lost for which claim has been provided from Amazon. Also, with 9 units being received from customers, 5 seemed to be damaged in transit and amount has been claimed for the same.
– For my last SKU, QYP-004, I had sent 30 quantities from which, 20 were sold and the remaining 4 were lost and 6 were damaged.
Before I proceed further, it is very important for you to know that even though Amazon claims a refund for our lost and damaged product, it is a loss for sellers like me.
This is because, when we sell to customers, they purchase at the rate what we sell them at. Whereas, sellers receive their refunds with much lower than their actual market value.
For eg, The MID-003 product, I sell it to customers at a rate of 575$, whereas Amazon refunds me at a rate of 500$. Experiencing a loss of 75$ on one product is huge.
How to keep a check on your Amazon FBA Shipments?
From your seller central account, go to manage FBA shipments from inventory.
While you go deeper to shipment plans through manage FBA shipments section under inventory, you will receive how many units were sent and, how many were received at the fulfillment center.
If the count isn’t same, you got to click on the Reconcile tab and submit a request. And choose an option
- If the count in discrepancy shows positive number, you need to request the warehouse to research it.
- If the count is negative, then you choose units not shipped or missing.
When we ask Amazon for research, they either research and find the item and add it in our stock, or if they don’t find, we get reimbursement for our missing product.
– After the products are received by Amazon, you need to check if the products have been put on sale or are reserved.
– Check your reserved inventory reports from, Reports > Fulfillment > Reserved Inventory.
- It is necessary to reconcile your Amazon and Amazon FBA shipments at every 45 Days.
- Amazon asks for a proof of purchase if you request for reconciliation after 60 Days (unless it is a high dollar item).
- If Amazon is not able to locate your item after placing reconciliation request, they will refund the product amount.
How was I able to reclaim my lost inventory?
To resolve my above-discussed issue, it is necessary to audit Amazon at the end of every month and open cases for all the noted discrepancies.
After the closure of every case, and receiving an e-mail notification, we need to verify if the reimbursement actually got applied in Payments.
Here are some reports we can check from our seller account under the ‘Reports’ Tab.
1) Destroyed Inventory
2) Damaged Inventory
3) Lost Inventory
These reports can be pulled from your seller profile.
Path: Seller Central – > Reports – > Fulfillment, find Inventory Adjustments on the left-hand side and Select Reason Group for a date range.
- Ones you select a reason and date range, you get the report. Copy and paste this report on a spreadsheet and sort it by FNSKU.
- Delete the lines with “Damaged at Amazon” and “transfer to holding” reason as Amazon has already applied these reimbursements.
- Save your file in .csv format with a valid reason group.
- Visit help -> contact us page and raise an FBA issue with the attachment.
After the issue is submitted, Amazon gets back to you within 12 hours and will reimburse the amount within 5 to 10 business days.
Note: Your reimbursed amounts can be checked from,
Reports -> Payments -> Transaction View -> Filter View by “Other” and adjust date period to preferred dates. Check for “FBA Inventory Reimbursement” under product details.
Now that you know how to raise reimbursement requests from Amazon, you should make it a part of your daily work routine and keep your inventory list clean of damaged/lost items.
To perform this task in a much easier way, connect to EasyEcom team by clicking here.
eCommerce Profitability: Sales vs Profit on Amazon/eBay/Shopify
All the profitability calculators that currently exist in the market, are really not doing their job! They don’t even provide us with complete information. To be precise, they never advise you with the ways to increase your profit margins.
Don’t trust my words?
Let me show you how the existing calculators are a mess and, can even eat our money without us realizing.
What Amazon calculator is all about?
To sell on marketplaces like Amazon/Flipkart, you have to consider the deductions done at their side. Taking into account the Amazon calculator for a kitchen Appliance sold by me.
Amazon has shown the charges based on its deductions, Referral/commission fee (charges based on product category); Closing fees; shipping fees; sales tax.
If you price your products based on the above calculations, you are doomed to lose money. Want to know why? Its because the expenses aren’t limited to the above calculations, you also need to take care of Product returns; reverse logistics; damages; branding expenses; warehouse storage charges and more.
Let us now see how you can be on a safer side by considering Profitability affecting factors.
What are Profitability affecting factors?
An organization selling products have to bear additional charges apart from the product cost price.
For e.g. My organization sells kitchenware products and there are employees working for the company who needs the system to operate on, which uses electricity.
The company expenses will involve,
- Salary/commission for employees
- Warehousing charges
- Electricity charges
- Marketplace deductions/ returns/damages
- Employee discounts
- inventory shrinkage
- Shipment charges
- Loan interests (if any for the company).
If your inventory is stored in a third-party warehouse, they do charge extra on storage and logistics (forward and reverse).
So, one has to take care of these expenses while planning on selling the products. This profit will not be generated overnight; you need to have patience to win over the industry.
To work on this better, one has to break these into two categories, Fixed and Variable charges.
- Fixed charges remain constant, generally includes building rent/employee salary.
- Variable charges increase at a constant rate, it includes the products/utilities (electricity/phone bills)/wages, etc. These charges increase with time depending on the sale.
The image shows the fixed cost remains same and variable cost increases with time.
Keeping the above data handy, will always help you determine and be ready to overcome the challenges involved with your expenses. Now let’s talk about eCommerce specific factors:
Breakdown of charges applied by Amazon on a return
Please consider how much a marketplace (like Amazon/eBay/Shopify store) (in this case Amazon) charges on receiving an order.
The user orders the product and makes the payment
If you see the below screenshot, it says the selling price of the product is 799 USD.
When the customer orders the product of 799/-,
MP deduction is based on,
Transferred amount to seller = 799 – 262.97 = 536.03
What seller gets?
An amount of +536.03
What marketplace gets?
An amount of +262.97
After seller returns the product, 799 USD is refunded to MP
Let us now see what amount is refunded and what extra charge does the seller holds from MP,
What MP gets here?
Seller refunds the whole amount to marketplace, (536.03) + MP extra deduction, (133.78) = 669.81/-
MP received amount before return = +262.97
669.81+262.97 = 932.78 – 799 = +133.78
What the seller gets?
The seller ends up paying an extra amount of -133.78 to the marketplace.
In addition to this, the brands are being charged extra for advertising their product on Amazon.
So, if we consider only the return charges we see that the product which a seller had got for 100, lists it on Amazon for 799, ends up paying extra 33.73 Rs. on return.
With handling the return rates, one should keep in mind to take care of these losses in the product listing rate on Amazon.
How to figure a product selling price while ensuring profitability–
Choosing the right marketplace to sell online is very important. Every marketplace has their own features when it comes to security, accessibility and fee structure. These sites take their commission based on your sales from their website and some others charge you in a different way. It’s like every e-commerce website has their own commission structure.
Let us now see what do these marketplace charges are based on,
- Commission fee which is charged based on the product category; it differs based on the category and marketplaces. The average commission being collected is around 15%.
- Fixed closing fee is based on the transactions done within a particular price range (M.P. e.g. Amazon/Flipkart) or based on per units sold by the brands (M.P. e.g. eBay).
- Shipping fee is charged based in Domestic and national shipping by the marketplaces. Brands can choose to offer free shipping or charge an extra amount. Few MP like Amazon and eBay allows self-shipment as well.
- Reverse Logistics charges are applicable for sellers on the returned products
- Payment Gateway fee, which is charged at 2.5% by few of the MPs like Flipkart/Paytm for transactions.
- Marketplace Penalties are for late shipment or on delivering damaged products
- RTO% (Return to the origin) is around 40% for some categories. It is charged when the orders cannot be delivered to the customer or when the products delivered is damaged and has to be shipped back to the warehouse. It can also include returns/fraud returns/customer error etc.
With these factors in mind, you also need to,
- Compete with other sellers in order to make a boost in your sale.
- Compare your rates from competitive websites (like rate comparison between Flipkart and Walmart)
Here is a question on Amazon central from a seller experiencing loss on a product because of their additional charges,
Growing marketplace fees will compel brands to sell at a higher rate. Customers do check multiple websites before buying a product, and when they get the same product at a much lower cost, they will not consider buying at your listed price.
All I can say is to stop selling the products where you end up with loss through these marketplaces and rather choose brands with value to ensure fewer returns. Identifying these opportunities to either increase the price or prune losses by discontinuing those SKUs, is extremely critical. Luckily you don’t have to manually do all this. There are software’s that consider all the factors and gives you a net profitability report. If you are selling online, be sure to subscribe to such software and monitor your profits per SKU, category or even at the brand level if you are selling multiple brands.