The Pros and Cons of Stocking Inventory in your Business

When it comes to running your online store you need to decide where you are going to keep your inventory. Are you going to look after your own stock, or use a method such as dropshipping?

To help you decide, we've listed the pros and cons of stocking your inventory, business, so you can choose the right option for you.

Pros:

1. You can provide better customer service

If you have full access to your inventory then it allows you to provide better customer service because you're cutting out the middle man. If your customers come to you with a rush order then you can reduce the time they have to wait by sending it out straight away.

You don't need to worry about the quality of your products as you will be able to check them before you send them out. And if there is a problem with your products, you can deal with it instantly, without having to put the problem on hold while you contact your supplier.

2. You can take advantage of bulk savings

Suppliers will offer plenty of savings if you buy in bulk and this can definitely be worthwhile to your business if you map out the inventory you will need. You'll never fully know how much stock you will need, but if you do end up with too much, then you can always run a promotional sale on the left over inventory and attract new customers.

3. You can manage how much stock you'll need

When you get an influx of orders and you don't house your own stock, there isn't really much you can do about it, other than hope that you can find a supplier to deal with a huge order. But if the control is in your hands then you can prepare for any occasion. If you're running low on stock then you can order more, just in case. Plus you'll come to learn when stock will be in high demand, especially if you are running a promotion.

4. You can entice more customers back

Did you know that boosting retention rates by just 5 percent can actually raise your profits by 95 percent? Looking after the customers that you've already got is an important factor to the success of your store...

The great thing about sending out your own products is that you get to package them however you like. This means that you can personalize each order and include tasty offers that will entice your customer to shop with you again.

5. You can stay on top of deliveries

If you are personally sending out your products direct from your business then it allows you to stay on top of deliveries. If a customer has not received their order then you can find out why and resolve the issue immediately. You will also get the choice of which delivery method will suit your business, so you can choose a company that you trust, and that offers a great deal.

Cons:

1. You need to invest in your inventory

Although buying in bulk is great for saving you money, if you have only just set up your store then you may not have the money to buy stock until a customer makes an order. If you can't afford to buy products in bulk then it is worth using drop shipping until you have made enough money to keep the stock at your business.

2. You need space for your products

One of the biggest set backs is that you will need enough room to store your products. More often than not you will have to invest in storage space which can be quite pricey. This can also incur costs to maintain and run, which means you'll have to put your prices up on your products and you could end up losing out in the long run.

3. Your inventory could become outdated

As you will need to buy in bulk there's always the risk that you won't shift all of your stock and it could become outdated. Say for example you are selling Christmas jumpers - clearly there is a limited time that you can sell them for - and if you don't manage to do this then you'll end up with a bunch of jumpers that you can't even put on sale as they will be outdated.

4. More work is involved

Taking care of your own stock definitely requires more work on your part. Not only do you need the space for it, but you need to keep track of how much you'll need in future and keep full control of deliveries. The great thing about running an online store is that you can do it from anywhere – but this isn't really possible if you have to manage the delivery side of your orders too.

5. You'll have to pay insurance

Probably not something that you may have thought of, but it's one of the unfortunate facts of life. If you have all of your stock at your head quarters then you are going tohave to pay higher insurance premiums. You're risking the chance of loss, theft, or even fire/water damage to your stock and if this happens then you will lose out on sales, and quite possibly loyal customers.

Takeaway thoughts

Your inventory is clearly one of the most important aspects of your business, so it's definitely worth thinking about where you are going to keep it. If you have the space to look after your own stock and the time to manage deliveries then it may be beneficial for your business to do so.

If you have very little money and can only afford to buy stock when a customer buys from you then it may be worth using drop shipping. There is no right or wrong answer, it really depends on many factors for your business.

Let us know what you decide to do in the comments below and if you need help setting up your online store, then we are more than happy to help! Connect with us on Facebook, Twitter and Google+ for more handy posts like this one. 

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Comments
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5
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Keri Blakinger
August 14, 2014 9:18 PM
It's amazing how this wasn't at all part of the discussion 20 (or even 10) years ago. I mean, online businesses weren't really a thing at all 20 years ago but it's amazing how quickly alternatives to stocking inventory -- like drop shipping -- have proliferated. (Or maybe it isn't all that quickly and I just wasn't aware of it before ...)
Bryan (Store Admin)
August 18, 2014 10:44 AM
@Keri Blakinger, you are right. Drop shipping wasn't much of a topic 15 years ago. Amazon was one brand that started out as mostly an online bookstore, but is now well-known as a drop shipping giant. I started a drop ship store in 2003. It really is a pretty awesome way for a new online store owner to launch a business with little to no start up money. Even if you want to stock products and go after higher margins, the drop shipping option is a great way to research a niche. If all goes well, then you can always transition to stocking products.
David Adams
August 18, 2014 4:11 PM
This is why I prefer dropshipping. If there is any problems with damaged items from a warehouse or something it's fairly easy to fix the problem. But if I had an inventory of items and they were lost in a fire, I'd be out of a lot of merchandise. Of course I'd pay for insurance, but the idea just sounds like I'd be wasting more money. To me I would rather dropship as I feel it's best for the pros to do it anyways. I know it's a bit costly on that end as well, but it works fine for me.
Bryan (Store Admin)
August 18, 2014 4:21 PM
@David Adams. Agreed. Drop shipping has also been my choice for many years. There are definitely two sides of this coin, but it's an interesting topic. It really just depends on preference.
Bo Tipton
August 18, 2014 6:43 PM
I have been drop shipping since 2001 one and selling on eBay since eBay got started. I like drop shipping but you have to be very careful about the company you chose because there customer service can put you out of business. A good drop shipping company is worth its weight in gold. How did I find a good drop shipping company? By asking people who were drop shipping and had been making money at it.

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