Overselling can leave both retailers and customers pulling their hair out. You think you’ve made a sale. And the buyer’s looking forward to receiving their order. Then comes that dreaded "out of stock" email. Something went wrong and you sold more items than were actually in stock. And with 70% of shoppers preferring to defect to a competitor rather than wait for backorders, this can be a major drain on your business. But this is a totally avoidable situation. So in this post we examine overselling - what it is, why it happens and the common practices top retail brands use to make sure it never happens in their business.
What is overselling?
So that we can address the problem at its heart, let’s first just clear up exactly what overselling is. And (perhaps more importantly) what it isn’t. When we refer to overselling, we mean: A customer has completed a purchase on any of your sales channels that turns out to be for an item you don’t actually have in stock. And not: The problem of just generally running out of stock (AKA stockouts) and having items unavailable to buy across your stores. While there are some crossovers with the two, the latter is more an issue of sub-optimal forecasting and inventory purchasing. Whereas overselling can stem from a few other issues.
What causes overselling?
Overselling can occur for several reasons. It could be down to:
Not updating stock across every sales channel. So when something is sold on Amazon, for example, the stock level isn’t instantly updated on all other stores.
A discrepancy between actual and recorded stock. So when it comes to pick the order, the stock isn’t actually there.
Inventory being damaged or destroyed. So when it comes to pick the order, the only stock remaining is damaged and not suitable to send to the customer.
A sudden spike in demand. So orders are coming in faster than you or your system are able to update accurate stock levels across every sales channel.
Or even a combination of some or all of these. The key is to identify which of these reasons is the biggest cause in your business. And then use the following tactics to address it:
1) Perfect your stock taking procedure
Stock takes can be a painful thought for most warehouse managers and workers. But they’re essential to find and rectify errors - errors that can result in you selling stock that isn’t actually there. However: It’s no good doing huge stock takes every year or few months that close down operations for days on end. This leaves plenty of time in between for overselling to occur. Completing more regular, smaller takes spread out through your team is a much better way to go. Try these:
Cycle counting. Where team members are assigned ‘counting tasks’ of a small set of products each week by your warehouse manager.
Spot checking. On top of their cycle counts, your team would recount a product if it’s proving problematic or if they have some spare time and need something to do.
Taking this to the next level would involve bringing in the use of barcode scanners that connect to a centralised management system. Your team members would simply scan a product and verify or update its quantity on-screen after counting it. So no more manual paper counts filled with errors and wasted time.
2) Set strict reorder points
Your reorder points for each product should indicate the exact moment you need to order new stock for that item. It takes into account the typical lead time of getting a new purchase order to your warehouse, booked in and ready for sale. As well as making sure you don’t eat into the emergency ‘safety stock’ reserved for sudden changes in demand. Here’s the typical formula we advise using: But there’s no point working out this figure if it’s not strictly adhered to. Leaving even a day or two between hitting a reorder point and placing an order can throw your operation out of sync. And result in stock not being available when it could have been all along.
3) Use first-in-first-out (FIFO)
Leave products in any warehouse long enough and they’ll eventually get damaged or deteriorate with age - especially when it comes to anything perishable. It’s therefore essential to make sure each item spends as little time in your warehouse as possible before being used to fulfil an order. Or you could end up overselling due to damaged stock. This is where FIFO can be super helpful. Or in other words: Always fulfilling orders using your oldest stock first. It’s a good idea to set up the majority of your warehouse shelving so it’s accessible from both sides. This makes it simple to always load new stock from one side and take from the other - creating a FIFO flow rack: But it’s also essential that you communicate this heavily to all your team members (especially pickers). Signs displaying DO NOT PICK FROM THIS SIDE and DO NOT PUT AWAY THIS SIDE are always a good idea.
4) Update stock levels regularly
Yes, selling across multiple online channels (and potentially several offline sites too) can be extremely tricky to manage. But the simple fact remains: If you don’t update stock levels on all your stores multiple times a day then you’re just asking for overselling to occur. Of course, this can (in theory) be done manually. Where you or a team member would recalculate and upload entire stock levels to each channel as often as humanly possible. But the most successful retail brands invest in automation and opt for some kind of inventory management system to do this for them. Take a look at this example of an iPhone 5C in Veeqo: The item is pushed up to both an Amazon and eBay store (and could also go up to multiple other stores and marketplaces). But there’s one central stock figure of 198 units - with five allocated to orders and a remainder of 193 available for sale. Just make sure whichever inventory management system you use updates this central stock figure across every sales channel as close to real-time as possible. Meaning the available inventory is up-to-date everywhere you sell and effectively eliminating the risk of overselling.
5) Dedicate stock to separate stores
Another option would be to segregate your total stock and strictly dedicate only certain amounts to each store. For example: You have a total 150 units of the iPhone 5C from above. Rather than just listing 150 available on all your stores - you dedicate 50 to your own website, 50 to Amazon and 50 to eBay.
This way, each store has its own stock. And you can’t oversell by having someone buy the last item on eBay at the same time someone else does on Amazon. But there’s a huge downside: You miss out on sales. Run out of stock on eBay and nobody can buy your product there. Even though you potentially still have 100 units sitting in the warehouse if nothing has sold on Amazon and your own site. Manually shifting stock around is possible. But it becomes a juggling act that gets old very quickly. All in all, your best bet is to:
Perfect your stock taking so that you keep an accurate stock figure in your system
Always use FIFO to reduce the risk of items perishing or getting damaged.
Strictly adhere to your reorder points.
And invest in a quality inventory management system that reflects a central stock figure up to each of your stores as close to real-time as possible.
Stick to these principles and you should make overselling a thing of the past. Do you do all, some or none of these things in your retail business? Let us know in the comments below how they’ve worked for you.