The competition for market share this season is fierce. Marketing budgets are stretched thin. Fortunately, there are some things that you can do to increase sales without breaking the bank. A couple of days ago, we posted “Five (Almost) Free Ways to Increase Your Sales This Holiday Season.” This post is for the people who emailed me with “Got any more ideas?”

1. Improve your inventory management. It’s hard to sell from an empty pushcart. Focus on getting hot items restocked as quickly as possible. And, when you can’t get any more, go to number two on this list.
2. Provide substitute item suggestions for out of stock items. Granted a no-name MP3 player may not satisfy a customer looking for an iPod, but a blue sweater in a different style may do the trick. Suggest, don’t insist. The objective is a happy customer.
3. Use text2save SMS technology to increase brick-and-mortar and ecommerce sales. It’ll allow you to bump up sales while capturing additional contact information. Always provide a way to opt-out.
4. Give “come back” coupons when people make a purchase. Offering a deal if they return a few days later encourages people to do more of their holiday shopping with you. Continue the program until after Christmas so they will look to your business first for after holiday shopping.
5. Promote “last day to order and receive delivery” deadlines. People procrastinate. Let your fulfillment team show off and increase sales at the same time. Note: Don’t do this if you can’t deliver on the promise.

Inventory management is a risky business. Too much product on hand increases carrying costs. Too little reduces customer satisfaction. Finding the perfect balance between the two is near impossible.

The best managers know that they are in the risk management business and use every available tool to minimize their exposure. One key component is the cost of backorders. Knowing how much being out of stock costs your company helps refine the order decision.

There are both short-term and long-term costs associated with backorders. The short-term are the processing costs for multiple shipments to customers and receipts from vendors.

The long-term costs should keep you awake at night.

Being out of stock costs you customers. If you handle a backorder situation well with good communication, the first one or two times won’t have a negative effect. But, let it become a regular experience and you destroy loyalty.

Your marketing is less effective because people have become disillusioned with your company. Every promise is judged by your failure to deliver. If you don’t have a relationship with the inventory management team, you won’t have a clue that there is a service issue.

To measure the effect of backorders on your marketing, compare the order history of customers who have never had a backorder with those who had multiple out of stock experiences. Then, work with your inventory management team to minimize the problem.

Add notices to your website to let people know when items are getting low on inventory or out of stock. If the ability to reorder is questionable, remove the item from the website when inventory is depleted. You can always add it back, but you don’t want to go through the notification process and disappoint your customer.

Review the transactional emails to insure that they are communicating the right message to your customers. If an item is backordered, offer a substitute when available. If there is an extended delay, offer a gift or discount on the current order. Offering it on a future order adds insult to injury. And, always give your customer the option of canceling. Lost orders are disappointing. Lost customers are debilitating.

For more information on calculating the costs of backorders read: Are Backorders Sabotaging Your Bottom Line?

Summer is officially over. Holiday is just around the corner. Are you ready to make your dreams come true? Or, are you hunkering down, waiting to see what happens?

A great holiday season (translation: profitable) is yours if you take the following steps:

Energize your marketing. People are tired. They are tired of the recession, health care debates, wacky weather, and the same ol’ stuff. They want to have some fun. Money may still be tight, but they’ll send some your way if you give them a lift or a promise of a better tomorrow. Scrap the plan that put lipstick on last year’s pig and come up with a new strategy to engage your customers. Use every tool in your marketing shed to make your products and services the sunshine in someone’s day.

Get your customer service house in order. Nothing drives costs up and sales down faster than poor service. Great service starts with happy employees. Seriously. If work is a miserable place to be for your team, the sales floor is worse for your customers. Make your business the happy place. It’s contagious. Your customers will love it and reward you with more purchases.

Dot your i’s and cross your t’s. The devil’s in the details. Improve communication between departments so there are no last minute surprises. Have contingency plans for inventory shortfalls, marketing issues, and service snafus. They’re going to happen, so be ready before they do. The more you prepare, the easier the response.

Be optimistic. Success is often a state of mind. Negative forces invade and destroy companies. Use your positive attitude to lift your business to the next level.

That’s all, folks. Now go get ready for a great holiday season…

Inventory management is simple if you are a psychic. All you have to do is gaze into your crystal ball to see which items are hot and which ones are not. If you know how to do this, then move on along. There is nothing for you here. But, if it seems that your profits are continually falling into the inventory money pit, let’s fix it.

Good inventory management programs find the right balance for your company. Too much stock on hand increases carrying costs, shrinkage, and liquidation. Too little increases fulfillment costs, cancellations, and returns. It also reduces customer lifetime value.

The right balance is challenging to find. Many give up and look for a turnkey solution. They want to input transactional data and have the computer magically output the correct inventory level for every item. This scientific approach has merit, but the best system is a combination of art and science. Nothing beats an inventory manager who understands product dynamics and has the right tools to analyze the data.

What do you do if you don’t have that person on your staff? Start with the data and tools. Build historical references so you can predict how new items will perform. Be flexible with great contingency plans. And, keep your eyes open for a top-notch inventory person.

There are five basic steps to forecasting demand:

1. Start with your sales projections to determine the overall inventory requirements. Ultimately, you will drill down to the item level. The sum of the individual items forecast must equal the total sales projections. If the total campaign is $20,000,000 with a 60% margin, then the total inventory forecast must equal $8,000,000. Each time the marketing plan is revised, update your projections.

 

2. Segment the total inventory forecast into product class divisions. This makes the numbers much more manageable. Utilize historical sales information to weight product classes appropriately and define the order curve. The overall curve will follow the sales curve, but individual classes may vary from the norm. Be sure to factor in special promotions when analyzing the data. A special discount offered in the previous campaign skews the historical data. Planned promotions in the new campaign will affect the projected curve.

 

3. Continue the segmentation process down to the item level. Use historical sales information and new projections to determine the total units for every carryover item. Begin with the presumption that each item will perform exactly as before. (i.e. an item with 1,000 units sold in the previous campaign, would sell 1,100 units if the forecast were 10% higher.) Utilize historical data for similar items to project sales for new products.

    
   Once the initial item forecast is complete, adjust the sales by weighting each item. For example, a carryover item that sold exceptionally well last campaign may need to be adjusted down since it has already been presented to the customer base. A new item may need to be adjusted up because it hasn’t been seen before. Work with the marketing team, so there is a clear understanding of the customer/prospect mix. A campaign going mostly to prospects may perform similarly to the previous one because the products will be fresh to the majority of the recipients. When this step is finished, total sales for each item will be forecast.

4. Calculate all of the costs associated with inventory, backorders, and overstocks to determine the best inventory level for each item. Inventory expenses include carrying costs, product movement, and administrative overhead. These costs will vary significantly as the pendulum swings between backorders and overstocks. Backorder expenses include additional fulfillment processing and shipping costs for multiple shipments, lost opportunity from cancellations and missed sales, increased returns due to late shipments, and reduced lifetime value. Overstock expenses include liquidation costs and restocking fees.

    
   Using the sales projection curve and demand forecast, break the total units for each item into orders. Be sure to consider lead times, vendor reliability, and processing. There will be three types of orders – the initial order is the one that should cover the inventory until sales data can be analyzed to revise the plan; confirmed orders are firm and will cover the minimum sales forecast; and cancelable orders are pending confirmation or cancellation depending on sales. If these orders are set up correctly, the vendor performs as promised, and the inventory team follows up in a timely manner, inventory levels will provide the maximum coverage at minimal expense.

5. Communicate, communicate, and communicate. Failure to communicate with the marketing team and vendors derails the best inventory plan. They are your partners in this process. A good relationship with them significantly reduces costs and improves service levels.

A good inventory management program is an investment in future returns. It increases customer satisfaction and reduces costs. Start improving your process today so you can bank the benefits tomorrow.