How Much Inventory Do You Need?
How to calculate how much you need in inventory and how much to order each month.
Suppose you think you will sell $500 per month in product. ( We will assume that you mean $500 per month in wholesale value. Depending on how much you markup the products that should mean at least $1000 a month in retail value. Actually it might mean as much as $2000 per month in retail value.) And you expect to order $500 in replacement inventory each month.
How much inventory do you need to sell that amount?
To make it easier to visualize, let us talk about Polish Pottery.
If you decide to sell only one plate in one pattern, if you start with $500 in inventory of that plate, at the end of the month you will have no plates. But it may be that you may sell them all in the first week so the rest of the month you have nothing.
If you order directly from the factory in Poland, you can expect to have to wait two to four months from the time you order and pay to the time that you get the delivery.
So in the best case, you will have to wait two months. So you will need at least $1500 inventory to start. And you must order replacements at the end of the first month so that you have inventory on hand at the end of three months.
Now assuming that you have sold your inventory at a markup of at least 100%, you will have money on hand to reorder. You will have to add a bit, but most of the money should come from gross profits.
But there are other considerations. Factory minimums and shipping costs.
For Polish Pottery the factory minimum is generally $2000. So your initial order will have to be $2000 and your replacement orders $2000..
And because of shipping costs, practically speaking you should order at least a pallet load. If not, your shelved cost of product will be so high that your prices may be uncompetitive. See Notes On Shipping. And for Pottery, a pallet load will cost you at least $2,000 and maybe as much as $3,500 .
Now for something like jewelry that is compact, $2000 worth of jewelry can be in a box by UPS. The delivery time may be a month or more, but the shipping costs will be much lower.
Now let's add another variables.
If you are going to sell pottery in a shop, generally $500 in inventory covers a small shelf. How often would you drive to a shop to buy Pottery if all they had was a small shelf of it? It is ok if you have a gift shop or tourist stop where the pottery is mixed with a lot more. But as a stand alone product or a major drawing item, think twice.
With $500 in inventory, if you have more than just plates, you will quickly be out of stock on the popular items.
So what does it mean to you?
Expect to order at least $2,000 in product at a time if you buy directly from the factory and if you want to have a decent offering that will attract customers.
Add shipping costs. Those will vary with your location and will be quoted by the factory rep. Expect $1200 to $1800, plus- minus. See Notes On Shipping
If you are interested in selling Polish Pottery, read all the information about Starting A Polish Pottery Business