Thursday, June 20, 2024

Top 7 Strategies to Liquidate Inventory

What is the best method for liquidating inventory is one of the most frequently asked questions in our private members’ area.

You will eventually encounter dud inventory that you must get rid of if you have been selling for any length of time. Either the product can no longer be ranked due to price competition, or you simply need to free up cash flow.

I’ll go over the most effective methods for inventory liquidation in this article.

In this article you will learn:

  1. The Best Option is Usually to Get Rid of the Inventory
  2. The Liquidation Program of Amazon
  3. Alternative Methods of Inventory Liquidation
  4. Eliminate the band-aid right away.
  5. CONCLUSIONS

The Best Option is Usually to Get Rid of the Inventory

A bit of a gut check is necessary before we talk about the optimal method for liquidating inventory.

The best option is frequently to dispose of your inventory. You’re saying that you should discard all of the inventory you spent thousands, if not more, on?

Usually, disposing of is the best course of action if you are incurring long-term storage costs. Make every effort to obtain the best price for your inventory if you’re still paying regular non-long-term storage fees. It is imperative to acknowledge the possibility of having to get rid of your inventory as you approach the point of long-term storage.

Normally, the cost to remove or dispose of your inventory is $0.50 + $0.20/lbs. However, you may end up spending much more than this to get rid of your inventory after applying large price reductions, covering selling, fulfillment, and storage costs, and—most importantly—calculating in your time. There are frequently additional tax benefits associated with deducting inventory as well.

Eliminating the psychological burden of your idle inventory will allow you to concentrate on other things, which is always beneficial. But since entrepreneurs are sometimes irrational people, there are moments when we’d prefer to gradually sell off a large amount of inventory rather than tossing it all in and paying a small fortune in storage fees.

The Liquidation Program of Amazon

Amazon launched a new Liquidation Program in the spring of 2021. Under this program, you receive, on average, 5% to 10% of your average selling price when Amazon sells your inventory to independent liquidators.

You can choose to use this optional program in place of getting rid of or removing your fulfillable or unfulfillable inventory. Amazon already sells your stock to liquidators for lost and damaged goods that they paid you back for (and subsequently discovered); however, Amazon retains the profits and pays you back almost fully for the stock. View the image below for an illustration of a third party reselling liquidated Amazon inventory.

Source: www.ecomcrew.com

In addition to a weight-based fee, Amazon will deduct a referral fee (which is typically 15% of the average selling price) from any proceeds you receive for your inventory, which is equal to 5% to 10% of the average selling price.

Thus, for instance, if you were to sell a 1.5-pound item that typically sells for $10, your possible earnings would be as follows (I’m going to use a median proceeds price of 7.5%, but it could be as low as 5% or as high as 10%):

Liquidation Proceeds: 7.5% x $10 = $0.75

Weight Based Fee: $0.35

Referral Fee: $0.11

Net Proceeds: $0.29

Hence, you would get about $0.29, or 2.9% of the average retail selling price, if you liquidated a $10 item on Amazon.

Although it may sound awful, this is typical of what you will typically get from most liquidators, who will typically give you between 1% and 10% of the merchandise’s retail value (and frequently, you will be responsible for freight to them). Furthermore, you will come out ahead if you choose to discard the item, for which Amazon will typically charge you more than $0.25.

It’s vital to remember that the buyer who is purchasing your inventory under contract also prohibits them from reselling it on Amazon. Nevertheless, they have additional options for selling it, including using eBay and other online marketplaces.

You just need to create a removal order and choose Liquidations as your method of removal in order to create a liquidation order.

Is it advisable to use of Amazon’s Liquidation Program?

Using Amazon liquidations is a good option if you’ve tried every other way to try to liquidate inventory on your own (see the section below) and you have to decide whether to dispose of your inventory. It’s highly likely that the portion of your inventory that you get from Amazon will exceed what you would get from selling directly to a liquidator.

Although the company prohibits purchasers of your liquidated inventory from reselling on the site, it is possible that some of this inventory will wind up on Amazon in the future. Furthermore, even if it doesn’t make it to Amazon, it might have a small effect on your sales there if buyers can find refurbished or used versions of your product on eBay or other websites.

Alternative Methods of Inventory Liquidation

This is the second gut check: in the end, you’re the most effective liquidator of your stock. Most of the time, you will be able to charge the highest price for your stagnant inventory compared to anyone else in the world. Because of this, you will be compensated appropriately.

In light of this, keep the following in mind as you liquidate your inventory:

  1. Create a New Merchant Fulfilled SKU. Create a New Merchant Fulfilled ASIN on Amazon that is less expensive and has a bulk quantity bundle. Place an MCF order if it sells; there’s no need to relabel or return merchandise.
  2. On eBay, sell in bulk. Create an item listing and sell in bulk, just like before. Direct shipping from Amazon is possible with multi-channel fulfillment.

  1. Amazon discount codes. For reasons like inventory liquidation, Amazon maintains a section of their website dedicated to outlet stores. Being eligible comes with a lot of requirements (like having recently sold something), but if your product qualifies, the outcome could be comparable to a Lightning Deal.

  1. Use a promo code on social media. This can be accessed through Seller Central’s promotions. Apply a 50% discount AND choose “Share with: Amazon Influencers and Associates.” There’s a slim probability that Amazon will distribute it among their extensive network of influencers, increasing the likelihood that your coupon will go viral.
  2. You can get some “free” sales velocity and possibly even give the product a second chance at life by enrolling it in Amazon VINE. However, you will be required to pay the relevant FBA fees and your inventory will be given away.
  3. Auction for liquidation. Numerous auction services focus specifically on selling off inventory. Top of the list is bstock.com. You should anticipate receiving pennies on the dollar for your returns and having to pay the auction houses hefty fees.
  4. Call other companies cold. Make some cold calls or send some emails to a few relevant companies to see if they will purchase your inventory at a steep discount.
  5. Give to a charitable organization. The tax benefits of this approach will differ greatly depending on the jurisdiction. However, giving away inventory may not really result in any tax benefits in a lot of jurisdictions. However, regardless of the jurisdiction you’re in, you will accrue karma points.

Eliminate the band-aid right away.

Here’s a word from the experienced (or at least from someone who has far too frequently made the following error).

Many people choose to put off their suffering by using a third-party logistics (3PL) to store their goods, incurring monthly storage fees of $25 per pallet or more, and then discarding the inventory—or, worse, slowly selling it at a loss. These customers fill 3PLs to capacity. Stay away from these individuals. You have to get rid of your inventory at some point.

CONCLUSIONS

One of the most difficult aspects of being a retailer is having to liquidate inventory, and most of us have a few depressing songs about losing money on unsold goods in our repertoire. I have an amazing (okay, not so amazing) tale about ordering $10,000 worth of marine products for US boats that were only meant to be used with European boats by mistake. (But after more than three years, I believe I’ve located every American who owns a European boat!)

The knowledge that you’re not alone should give you some comfort. Even the biggest retailers in the world have a few discount bins in their stores, and every business eventually loses money on inventory. What is your heartbreaking tale of sadness? Tell me in the comments section below.