Inventory Turns: The Real Key to Profit

Tracking inventory turns (the number of times a year you sell something and re-stock) is critical to making money. Inventory on the shelf costs you money just sitting there, and it is a total loss if it expires unsold. Getting products onto and off your shelves as fast as possible is where you make money. Two complete inventory turns a year would be good for a home-based business, three or four would be better.

However, the thought of putting every lipstick or candle and its purchase date into an inventory tracking program is probably enough to make you run screaming from the computer. Here's a simple color-coded tracking method I have used - unless you are colorblind, it works.

Supplies:

Small labels (I used Avery #05412, 5/16 x 1/2 in, in packs of 1,000). Highlighters in SIX colors that are easy to distinguish at a glance. You need one color for each month in your turnover cycle. You can also use colored dot labels if you want, as long as they are removable, but I found that the white labels are cheaper and you never run out of any color.

Make your date key: put the month and the color you will use for that month on a piece of paper that you will post next to your inventory. Let's assume you are using pink, blue, green, orange, violet, and yellow, in that order to do two turns a year.

Marking the Inventory:

Bring all your inventory into one place to mark it.

Don't worry about when you bought your current inventory. Everything you have at the start of the system gets the same date code. To start, scribble several sheets of the labels with the pink highlighter to color the dots. Put one pink dot on every product. Make sure you can see the dot easily when the product is stored.

While you are marking product, check the expiration dates. Set any product that is discontinued, damaged, expired, or less than 3 months from expiration to one side. Write down the cost of the damaged and expired product, then discard it. It goes on your tax return as a business loss for the year you discard it.

Put the product back, preferably all in one spot where you can see what you have without having to handle it.

Put the almost expired and discontinued product in its own area and sell that stuff - get it out of your inventory before it expires. Hold a clearance sale, use it for hostess gifts, whatever it takes. It's better to get 30% than 0%.

Ongoing Inventory Management:

After you mark your current stock, all incoming product for the rest of the month gets a label in the next color, blue, unless it goes right to a customer. Put the dots on as you are unpacking and checking contents against the packing slips. The month after that gets green labels, the month after that gets orange, etc. Every month, check all inventory and pull anything about to expire to make sure it gets sold.

When you pull product to fill an order, pull the product with the oldest color dot code. If you have two items with pink dots and one with a green dot, fill the order with one of the pink-dotted ones. Before you make any orders make sure you don't have that item sitting on your shelves.

When month 6 comes, you should have little or no product with a pink dot. If you do, make a note of what it is, have a clearance sale to get it out of there, and don't re-order whatever it was until you have cash in hand from a customer who wants it. If you want to keep the product on the shelf, add a second dot to indicate that it is into the second 6-month cycle. If you are running a lean, profitable inventory with good turnover you should almost never see a color from 6 months ago.

Benefits of Inventory Marking:

This method provides a reality check on your inventory management at several places in the cycle:
* seeing all of your inventory in one spot
* finding out how much expired while it was stashed in the basement or closet
* seeing the dots on the shelved product change color as product comes and goes