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June 29, 2021

EPISODE 28: Avoiding Amazon Inventory Mistakes


MerchantWords' Sell Rank Win Podcast: Episode 28 Avoiding Amazon Inventory Mistakes

In This Episode

We sit down with THE inventory management expert in the industry, Chelsea Cohen, co-founder of SoStocked.com, the first fully customizable Amazon inventory management software. Chelsea shares common and detrimental inventory mistakes to avoid and provides strategies to help all sellers stay in good standing with Amazon.

TRANSCRIPT

Tommy Beringer:
What's up you data-hungry, Amazon sellers. This is your host, Tommy Beringer of the Sell Rank Win Podcast from MerchantWords. And in this podcast, we give you the answers to your most burning questions, actionable insights that you can take away and implement into your business today. So let's go ahead and dive right into today's episode. What do you say, let's go,

What's going on, everybody. Welcome to the Sell Rank Win Podcast for MerchantWords. I'm your host, Tommy Beringer. And as always, we have a very special guest on with us today. My next guest is an Amazon inventory management expert and the co-founder of sostocked.com, which is an Amazon inventory management software. She's also a seven-figure Amazon seller, speaker, and consultant. Her regular clients include seven and eight-figure sellers as well. It is my pleasure to introduce you to Chelsea Cohen from sostocked.com. How are you doing today Chelsea?

Chelsea Cohen:
I'm fantastic. Thanks so much for having me on your show.

Tommy Beringer:
Absolutely. Thanks. I mean, thank you for coming on. Much appreciated. I'm sure you are very busy. The kind of the pre convo we were having before we got on here, it seems like you are a serial entrepreneur like myself. So very cool to hear.

Chelsea Cohen:
For sure.

Tommy Beringer:
Very cool to speak to a fellow entrepreneur. So that's very cool. So tell us a bit about how and why you got into selling on Amazon.

Chelsea Cohen:
Sure. So I had been looking for something to get out of the normal nine to five, working for somebody else. And really Amazon was not on my radar, and talking to various different friends of mine, I had heard that there were people that were going to be taking a course on Amazon. And I had heard that actually I knew somebody who was successfully selling on Amazon based on just a course that they had taken. And so knowing this person, I said, well, if that person can do it, I could do it too. No experience, nothing like that. And so we got into the course and I really didn't understand, until I bought the course, I didn't really understand the concept of selling on Amazon. I didn't know what private label really was. And once I got into what private label actually was and what we were actually going to be doing selling on Amazon, I was like, this is actually brilliant. And so, yeah, that was kind of how I started. I followed this course and launched my first product. It took off right away and that was it.

Tommy Beringer:
Very cool. What year was that?

Chelsea Cohen:
That was 2014.

Tommy Beringer:
2014. Me and you both started in 2014. The class of 2014.

Chelsea Cohen:
Yes. Yeah. When things were a bit different back then. Yeah.

Tommy Beringer:
Oh yeah. That's right. Definitely the good old days of sponsored ads, right?

Chelsea Cohen:
Yeah.

Tommy Beringer:
Yeah. What course was it that you took? I'm just curious.

Chelsea Cohen:
Yeah. The Amazing Selling Machine course.

Tommy Beringer:
Ah, yes, yes, yes. What's his name?

Chelsea Cohen:
Matt Clark and Jason Katzenback. That's actually how I first heard of MerchantWords because MerchantWords, we started using MerchantWords way back then. So you guys definitely go way back to 2014 for me.

Tommy Beringer:
Yeah. I know we started collecting, we were the first to start collecting Amazon by our search terms in 2012, first to market. And we're still here and continuing to make the software better as all.

Chelsea Cohen:
Yeah. Yes.

Tommy Beringer:
Very cool. Very cool. So how did you decide to pivot into the inventory management space from selling on Amazon?

Chelsea Cohen:
Yeah, So it was really out of necessity. I looked at my profit margins and there are some things that as the products season within a specific category, prices start to go down as competition comes in. But I felt that there was margin that I could get back. And so I started looking at where am I hemorrhaging? And inventory became a huge part of what I realized is that I was running out of stock. I was overstocking. I was sending in too much inventory, paying too much in storage fees, loans on inventory that I really didn't need to buy and interest on that. And all of those little things, it was a little bit like death by paper cuts. And I wanted to kind of stop the bleeding on that.

Tommy Beringer:
Yeah. So just kind of fixing a problem that you were having, right?

Chelsea Cohen:
Yeah, yeah, exactly. And I thought it was going to be easier than it was. I got the data, started looking at it and it actually started taking a lot of time to analyze the data. It became one of my full-time jobs. And I wanted to find a tool that could help me with it. So obviously I was like, well, so there's got to be a software for this. And so I started trying out certain softwares and nothing really was doing what I wanted it to do. I wasn't able to customize it the way I wanted. I also couldn't understand some of the numbers because you have these algorithms and the math is not easy. And there's something, some of these algorithms don't even tell you what they're putting into it, what the calculations are. And I have a little bit of a bookkeeping and accounting background. So numbers always have to make sense to me. And the numbers just didn't make sense. And I started kind of getting frustrated and turned to ask my friends what they were using.

Tommy Beringer:
Very smart. Yeah. So it's kind of exciting when you're trying to look for a solution, right, you don't find it and that entrepreneurial mind just starts going like you know what, maybe I can make something better and you did.

Chelsea Cohen:
Yes.

Tommy Beringer:
So that's how So Stocked was born, right?

Chelsea Cohen:
Exactly. Yeah. I was looking for this solution. I figured it's out there. But when I started asking my friends, what are you using? The answer continually came back because they're, high-level sellers and high-level masterminds. And they kept saying, we've tried everything, nothing works. We've gone back to spreadsheets. And to me that was like this huge opportunity opened up.

Tommy Beringer:
They had to go back to spreadsheets because nothing was working. Amazing.

Chelsea Cohen:
Exactly. And I figure like 2018, that was not the answer I was expecting to get in 2018. And so I figured, well I just need to find somebody who knows how to do this stuff and then make it happen. It sounds like so easy. Just find somebody who wants to go into business and build me a software.

Tommy Beringer:
Right.

Chelsea Cohen:
And it's like one of those things. But as soon as I opened myself up to that possibility, two weeks after making the decision that I was going to do that, I went and spoke at an event right outside of Houston, Texas. It was a very small event. And one of the late entry speakers who came in was Dan Fernandez. He's the founder of thomason.com. I'm not sure if you remember Thomason back in the day.

Tommy Beringer:
Yes.

Chelsea Cohen:
Yeah, 2015. So I knew Thomason. And so we ended up hanging out a small group of us, him included, the whole weekend. And he kept saying that he was so bored. He knew the SAS project. Software as a service project. I'm sitting here going like two weeks ago, I decided that I was going to find somebody and I have someone literally staring me in the face saying they need a new project. And I have a new project.

Tommy Beringer:
Awesome.

Chelsea Cohen:
Yeah. So it's just, fell into this. He has a team of developers. His business partner is a brilliant marketer. And so I just kind of plugged into their system. They're basically serial software builders. And we put this together and it took off from there.

Tommy Beringer:
Beautiful marriage, beautiful marriage.

Chelsea Cohen:
Yeah.

Tommy Beringer:
I'm just curious, how long did it take you guys to create the MV proof P for SoStocked?

Chelsea Cohen:
Let's see, 2018 we started and it was mid 2000. I would say April or May of 2018 is when we actually started wiring out the structure. We ended up being able to go live in July of 2019. So we thought it was going to take four months, he was, oh yeah we started in April or May and he's like, oh yeah we'll have something to launch by October. No, it was the following July. So everything in software takes longer, much longer than you expect it to.


But we launched in July to 25 people. We never, we always did a pay, it was a paid launch. We've never done a free trial because we wanted to build the software with sellers. And that's what we really did is that we've slowly had these kind of series of launches bringing in sellers and then getting feedback. And really for the first year and a half, Dan, my business partner and I, the founders, were the only ones talking to sellers. He handled the help desk. I onboarded every single seller that came in. And so all of the feedback that we got came directly on the founder's ears.

Tommy Beringer:
Very cool. Very cool. And the most important thing is that you guys are up and running now and doing well. That's awesome.

Chelsea Cohen:
Yep.

Tommy Beringer:
Sorry. Yeah. I didn't want to lose my listeners there for a second because the product management nerd came out of me because [crosstalk] for MerchantWords. So that's why I wanted to ask that.

Chelsea Cohen:
Yeah.

Tommy Beringer:
Let's get back. Okay. Okay you Amazon sellers, we're getting back to it. Okay. Just a sec. All right. So now Chelsea, please let all the listeners know out there, why is it so important to stay in stock?

Chelsea Cohen:
Yeah, so it's actually more important than ever to stay in stock. The most important thing used to be around the concept of ranking and profitability. That you'd go out of stock and then you start to lose some rank and that you would also lose out a lot in profitability. People don't really, they underestimate the amount of profit that they're losing when they go out of stock. Obviously, there's the money that you're losing when you stock out, the lost revenue. And then when you come back and stock, you have to re-rank the product. So there's that the re-ranking costs involved. If you had to air, ship something, there's the air freight cost. But the portion that sellers don't think about is if you stocked out because of marketing. Say for example you went into aggressive sponsored ads and you ran yourself into a stock out, which, let's be honest, agencies do this all the time to their clients.


If that is happening, you've just paid Amazon a bunch in sponsored ads, or you ran a coupon discount. I've heard of that happening from sellers running coupon discounts. And then the next month they're running out of stock. The coupon pricing or the money that you're paying your agency to drive you into a stock out, all of the cost involved in marketing yourself into a stock out is never really classified as the cost of stocking out. But all of that, the profitability of stocking out really initially was the first and biggest concern for sellers.

Tommy Beringer:
Yeah, no, absolutely. That's very detrimental to sellers, guys do not go out of stock. Make sure you're in there all the time. Because going into now, kind of transitioning into the IPI, then inventory performance index, which is how they decide on what's going to, if they're going to allow you to restock a certain amount. They take an account if you have excess inventory, what's your sell through rate, standard inventory, in stock inventory as well. Right? So now these are the metrics that you need to look at as well. And I wanted you to kind of speak about that as well, the IPI, Chelsea.

Chelsea Cohen:
Yeah. And that's why I mentioned it's more important than ever. The stocking out can actually put your restock limits in jeopardy. And so if you stock out, Amazon's, the way that their algorithms work for the restocking is they're looking at your past sales. And some of the most important factors, one of the most important factors is your sell-through rate. And so if you've got a sell through rate, they're looking at the past 90 days of sales, and then they're looking at the average amount of inventory that you have available. So say you stock out on one of your main products for half a month, that can have significant impact on your 90 days of sales. And so what you've got available in your current inventory, the average available inventory, a lot of that now becomes stale stagnant inventory because you've stocked out of your normal inventory. Your sell through rate goes out the bottom and Amazon uses your sell through it as a huge metric to determine what they're going to give you in the future. So your restock limits then plummet.


And now the only way to help to bolster this if you do stock out at FBA is if you're able to switch to FBM. Because sometimes you're stocking out because Amazon's check-in times are so long. And so that's something to keep in mind is that you should have a fulfillment center on your speed dial, ready to send inventory in.

Tommy Beringer:
Yes. Oh my God. Yeah. I'm having this issue now. Or I did have this issue. I have a three PL that I use out here in Pacoima. I'm here in Los Angeles. So Pacoima is a city near me. Anyway, so they sent it out. I think it was two, it was ground of course, because they're sending it to one of the other locations here in California, very close by. And it took them two or three weeks to check it in. I was going nuts.

Chelsea Cohen:
Yeah.

Tommy Beringer:
I was going nuts.

Chelsea Cohen:
Yeah. Yeah. Yeah. It's crazy. And so one of the things, I mean they did drop limits. I believe it was May 16. So they announced this shift, this shift to it's called restock limits by storage type. And they did this shift on April 22nd. And then they, everyone saw a big drop. It was actually May 16th and they made an announcement and this announcement actually helped you to understand why Amazon is doing this. Right. We just think that Amazon wants to hurt us and they hate us. Right? It's like the first conclusion. Like, oh, because Amazon hates us. They actually are doing this. It's almost like tough love. They're forcing us to get better at inventory management. I don't think they're doing it in a way that is very helpful to businesses, but the announcement as to why they all of a sudden dropped the limits on May 16th was that they're trying to get everyone's products in for prime day.

Tommy Beringer:
Right.

Chelsea Cohen:
It's kind of, it's a solution that creates problems of their own, but they're trying to, if you're not good at managing your inventory, Amazon doesn't want to give you more space. So it's kind of like debt to credit ratio I heard a good analogy. If you have maxed out your credit cards, the credit card companies aren't trying to give you more space because they see that you're not good at credit utilization. It's the same type of thing. If you've got three X storage capacity and you're taking three months worth of storage, they're saying you're not really good at utilizing the storage that you have, so we don't want to give you more.

Tommy Beringer:
Very true, very true. And something you alluded to earlier, Chelsea, and we could kind of maybe expand a bit on it is talking about the marriage between marketing and inventory and why could be detrimental to your business if you do not get it right. If you could go into that.

Chelsea Cohen:
Yeah. So I actually coined a term called inventory-minded marketing, and it's just kind of to drive into people's heads the idea that you need to always think of your inventory when you market. As we started in this business, a lot of us started without being business owners. So a lot of us started as maybe just regular internet marketers. So we have been, it's been pounded over our heads that marketing is this business. And so we are very focused on marketing and then everything else after that is kind of an afterthought. And it's starting to hurt our businesses. We're starting to have to grow up into having businesses that are fully operational because you have marketing inventory and cashflow. And so you have to have those teams working together because the marketing team could do something brilliant, but if you don't have enough inventory to sustain, it actually hurts the business rather than helping it.

Tommy Beringer:
Absolutely, totally agree. You got to get that right. You got to get those numbers right. Now, I've had this issue myself as well. And I know that you're the perfect person to talk about with this is the inventory issues when a seller, an Amazon seller is trying to scale. Can you go over some of the pain points there and then also maybe how to overcome them?

Chelsea Cohen:
Right. Yeah. I mean, when you're trying to scale, obviously cashflow is one of the biggest issues that we talk about. But the first question is, well, how many times have you gone out of stock in the last year? Right? And so part of the problem that people have is that they wait too late to actually place their orders because they have those cashflow issues because they know they're going to have to pay their suppliers. So they wait a little bit too late because they don't feel like they can make those payments. And so some of the challenges, especially as lead times get longer and longer, that initial payment is a little bit easier, but then those payments at the end, the 70%, usually people are at 30%, 70% payment terms.

That 70% you have trouble. So you're ordering smaller, smaller orders, trying to order them more frequently. But then the production schedule gets pushed back. The shipping schedule gets pushed back. And what used to be, say a 60 day turnaround, a 60 day lead time, now becomes a 90 day or 120 day. And how can you sustain the cashflow at that point? And so one of the solutions in terms of cashflow would be working with your supplier and maybe you can place a large order of, a three months order of inventory, pay the 30% and then have them hold a portion of your inventory and only send one month shipments of your inventory. Because what you can establish as a payment terms agreement with suppliers most times is that they will hold your inventory sometimes for free for up to those three months. And then they'll only have you pay the other 70% of what you shipped out.

Tommy Beringer:
Very smart, because if you have a very good relationship with your manufacturer, they will, most of the time I found in my Amazon business, they will let you just keep the product at their warehouse for free.

Chelsea Cohen:
Yeah.

Tommy Beringer:
They didn't even charge me for it, which was awesome.

Chelsea Cohen:
Yep.

Tommy Beringer:
So yeah, very cool to do. Or of course, if you know the owner of a three PL they'd just let you hold this stuff there. You could get that for free too, probably.

Chelsea Cohen:
Yeah.

Tommy Beringer:
Or at a discounted rate. But yeah, another there's something else I wanted to ask you, Chelsea is if a seller is phasing out a product, what should they do so it doesn't affect their IPI? Should they just close the listing? What do you suggest there?

Chelsea Cohen:
I mean if they've sold out a product, it depends. It depends on, there's specific math involved in whether closing a listing is going to be beneficial or not. Most of the times it'll be okay, but sometimes it won't be beneficial because the in-stock rates have a lot to do with the amount of products that you have open and available. So if you have say, for example, three products and the product that you're phasing out and closing was at all times in stock and you close it and then the other products that you had, you've had some bad history of stocking out, especially recently, the in-stock rate is going to be skewed because the product that you have that's actually helping with that in-stock rate once you close it, that eliminates it from that calculation. So if you haven't had a lot of trouble with your other products being out of stock recently, then it should be fine, but you want to keep that in mind.

Tommy Beringer:
Got it. Very cool. Thank you, Chelsea.

Chelsea Cohen:
Yeah.

Tommy Beringer:
So we like to keep these podcasts short and sweet. So we're going to go ahead and wrap this up. And at the end of every show, we want our guests to give our listeners one tip or trick that they can take away and implement after listening to this podcast. Whether it be inside of their own business or inside of their own lives. So what do you got for us, Chelsea?

Chelsea Cohen:
I mean, I would say that today, it's extremely important to get your marketing team and your inventory team to work together. Especially because of everything that's been going on with these re-stock limits. So coordinating those two teams, creating a system where the marketing team actually sends their marketing plans to the inventory team. The inventory team can check that against what inventory they have to actually see if it's a viable plan in terms of inventory. And then also for inventory to send reports to marketing. Send reports in terms of say stocking out. Is there any possibility that the inventory will stock out? Which skews should they actually start pumping the brakes on? Because you could prevent a stock out if you actually get prior notice. So sending a stock out risk report, sending a liquidation report, right, certain, if you have anything under, say five units a day, maybe that makes sense for your business.

Anything selling less than five units a day is something maybe you want to put on a liquidation list. Anything that you have overstocked, maybe over 60 days stock, you want to start pushing heavily. Because the marketing team now has to be responsible for the entire catalog. They used to be able to just push bestsellers, but nowadays they actually have to push all inventory because they need to help add towards the total sell-through. And so they need to actually market across the entire catalog.

Tommy Beringer:
Got it. Got it. Yeah. And everything you mentioned, I think that SoStocked could help with most of that, correct?

Chelsea Cohen:
Yes. Yeah. We've designed SoStocked to be able to plug in your marketing plans and also to be able to filter through your catalog, to make reports and actually set and flag reports or save reports as favorites for all these reports that I mentioned. It's just a way of getting your marketing into your inventory because they basically, we've seen they've worked, they need to work seamlessly. And so any tool that is not factoring your marketing into the inventory calculations is something that's going to actually be doing you a disservice because you're not getting the full picture.

Tommy Beringer:
Very cool. Very smart. Very smart. You guys need to go check that out if you're having inventory management issues. Sostock.com, for sure. So Chelsea, where can people find you? Where can they contact you? Some socials if you got any.

Chelsea Cohen:
Yes. Yeah. So we made this very easy, because I get this question whenever I'm on a podcast. Go to sostock.com/connect and you'll be able to get my socials, find place to reach out to me, get a demo of the software and check it out.

Tommy Beringer:
Very cool. Well, thank you so much, Chelsea. We're going to end this podcast right now. So I just want to say thank you so much for coming on with us today, taking time out of your very busy schedule. And yeah, I think we need to get you on again at some point later on down the road, but again, thank you so much for coming on and hope to talk to you soon.

Chelsea Cohen:
Yeah. Thank you for having me.

Tommy Beringer:
All right. Bye.

Chelsea Cohen:
Bye.

Tommy Beringer:
All right. Thank you guys so much for listening. And if you got any value out of this podcast at all, please let us know at the place that you listened to it at, whether it be iTunes, Stitcher, whatever it is. Give us some love. Give us an awesome review and let us know maybe some things you want us to talk about on the next podcast. Until next time guys stay awesome and be awesome.

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