Automate Your Shopify Store
Learn about the best ways to automate your e-commerce business and manage your inventory across multiple Shopify stores.
Product organizationHow to Manage Your Shopify Inventory BetterIf you run a shop on Shopify, you probably want to get the most out of your inventory, which means managing your stock carefully and efficiently. "Shopify inventory" is the term used to describe the products sold and stored through the Shopify platform. Inventory management in Shopify refers to the process of organizing inventory along the supply chain.
How to Manage Inventory in Shopify
When a merchant signs up for a Shopify account, they are provided with access to a hosted e-commerce store as well as a suite of tools to manage how Shopify works.
Shopify inventory is broken down into two categories: products and variants. Products are the main items sold and stored in a Shopify account, while variants are specific versions of a product, such as the colors and sizes.
Utilizing Shopify inventory management helps you minimize the cost of holding inventory by helping you determine when it's time for products to be replenished or to buy more materials to manufacture them.
Inventory Tracking
Shopify has a built-in inventory management system that helps you manage your Shopify merchandising and keep track of sales. The inventory area of Shopify allows you to track and view inventory while adjusting inventory levels. You are able to view the history of inventory adjustments for Shopify-tracked products and variants using this feature.
You need accurate inventory in your Shopify store for your customers to place orders. To view or adjust inventory levels for a product, you must first set up inventory tracking. Shopify lets you track inventory history for products up to 90 days in the past.
Follow these steps to enable inventory tracking:
Go to Products in your Shopify admin.Select the product you want to track by clicking on the name.If the product has variants, select the variant you want to track.In the Inventory section, select Track quantity.Check the box Continue selling when out of stock if you want consumers to be able to buy the item even if it's out of stock.Enter the quantity information for each site in the Quantity section.Click Save.
Please note:If you add or edit a variant for the online store and check Continue selling when out of stock, you can sell products even if your inventory is zero or less. Deselecting this option will prevent customers from purchasing the product since you do not want to sell an out-of-stock product.
» Learn what causes the "Inventory not tracked" message in Shopify and how to avoid it
Managing Out-of-Stock Inventory
Running out of stock is a common problem for Shopify sellers, and here are four strategies for managing out-of-stock items:
1. Move Out-of-Stock Products to the Bottom of Your Collections
An effective strategy to manage out-of-stock inventory is to simply move it to the bottom of your collection.
Unfortunately, there is no built-in way to do this in the Shopify admin. However, there are several third-party apps, like our own Out-of-Stock Police, that can handle it for you automatically.
2. Hide Out-of-Stock Products
Hiding products from your Shopify store until you are ready to sell again can be accomplished in a few easy steps. Here's how you do it:
Go to your Shopify Admin and click Products.Select Product List.Select the product that you want to edit.If you are adding a new product, select Add a product.Under the visibility section, do not check Online Store if you want to hide the product.
3. Forecast Your Inventory
The goal of inventory forecasting is to predict future demand for products and ensure that the correct level of stock is available to meet that demand instead of trying to keep selling when out of stock. Several different methods can be used to predict future demand. The most common method is trend analysis, which involves studying past sales data to identify patterns and trends. Other methods include market analysis, consumer surveys, and sales forecasting.
Apps like Out-of-Stock Police let you view statistics per collection and create custom reporting thresholds to know exactly when to replenish stock.
4. Add a "Sold Out" Badge
You can include a badge indicating that the item is "sold out." This allows your customers to immediately determine the availability of your merchandise.
» Learn the difference between sold out and out of stock
Syncing Inventory Between Multiple Shopify Stores
Creating and maintaining an online store is a cinch with Shopify. Shopify inventory management, on the other hand, may quickly become a source of frustration for business owners with multiple shops.
Fortunately, with apps like Multi-Store Sync Power, it is possible to sync your Shopify inventory in real time. Your inventory will automatically update across all shop locations when you make changes, including adding or removing products.
» Is your inventory spread across multiple locations? Automate your multi-channel inventory management with the best Shopify apps
Key Takeaways for Effective Shopify Inventory Management
To summarize, efficient inventory management is crucial for the success of your Shopify store. By implementing the strategies mentioned, you can maintain optimal inventory levels, reduce costs, and ensure a seamless shopping experience for your customers.
Product organizationShopify Inventory ForecastingInventory forecasting for Shopify is the process of predicting how much stock needs to be kept on hand in order to meet customer demand. This is done by analyzing past sales data to identify trends and patterns and then using that information to create a forecast for future demand.
Reasons to Use Inventory Forecasting
Demand Planning
Inventory forecasting can help plan for future demand. If a merchant has an idea of what their sales are going to look like, they can order the correct amount of inventory, ensuring that they are not overstocked or understocked.Production Planning
Forecasting can also help plan for future production needs. By knowing how many products a store is likely to need in the future, online store owners and their suppliers can ensure that they have the resources in place to produce products ready for purchase instead of having to manage out-of-stock products.Avoiding Shortages
Inventory forecasting can help businesses identify potential issues with their inventory levels and take corrective action before shortages occur.
How to Forecast Inventory in Shopify
Shopify has a few inventory forecasting methods online merchants can use to stay on top of their inventory, three of which we will cover in just a moment. Shopify stores have in-built sales, inventory, and marketing reports that can be leveraged to track sales and order trends, including sales finance reports, sales over time, sales attributed to marketing, and inventory sold per day.
As handy as these reports can be for inventory forecasting, it should be noted that the ability to access them will depend on the store's current subscription plan. Some stores that are on lower-tier Shopify plans may not have access to all the reports mentioned above.
1. Use Your Store's Analytics Page
Using this feature, you can gain insight into how your inventory is likely to look in the future. Of course, there's one downside to this. If your Shopify store is brand new, you'll lack accurate data to make predictions on how much stock you are likely to require during the next sales period. The good news is that, as your business grows, you'll have the ability to make progressively more accurate forecasts.
2. Use the Shopify Fulfillment Network
The Shopify Fulfillment Network (SFN) is a service that allows Shopify merchants to have their products stored and shipped by Shopify and is available in the United States, Canada, and the United Kingdom. It offers merchants a number of benefits, including lower shipping costs, no required packaging or shipping supplies, and automatic order tracking.
The SFN can help with inventory forecasting by providing an automated system to manage and track inventory levels. This system can help predict when stock is running low and needs to be replenished. Additionally, it can help identify trends in customer demand, which can then be used to adjust inventory levels.
3. Use Shopify's Stocky
Stocky is a feature available to merchants that use Shopify POS Pro. Essentially, Stocky gives automated suggestions on the products and quantities a merchant should order to meet customer demand. This built-in feature uses recent order history to predict how much stock you'll need and when it's the best time to order.
Here's how to use Stocky for inventory forecasting:
From Stocky's dashboard, navigate to Purchases > New Purchase Order.Determine whether the purchase order is for a supplier or vendor.From Generate, click Using Suggestion.Proceed to enter the remaining relevant details and then select Create Purchase Order.Once the order is created, send it off to your suppliers and manufacturers for fulfillment.
By creating a purchase order in this way, you are using Stocky's automated inventory forecasting features to make orders based on your store's previous order history. It's a foolproof way of getting your inventory stocked with just the right amount of products every time.
Have a Preview of the Future
Overall, inventory forecasting provides a number of benefits to businesses and can be a valuable tool in managing and planning for future inventory needs so you can avoid selling when out of stock.
Two of the many available third-party Shopify apps, Out-of-Stock Police and Bestsellers reSort, can automatically manage inventory once the initial planning stage has been completed.
Learn how Bestsellers reSort can help you save time and money by organizing your inventory more efficiently:
Out-of-stockTop Shopify Tips: How to Manage Out-of-Stock ItemsAs a business owner, it is important to keep track of your inventory. Not only is it necessary to ensure that you always have the products that your customers want, but also to avoid overstocking or understocking your products. A good inventory management system will help you keep track of your stock levels and ensure that you are never caught off guard.
4 Best Tips to Improve Your Shopify Inventory Management
Shopify provides several options for managing inventory, and here we'll cover the best practices for implementing them.
1. Deprioritize Out-of-Stock Items
When products sell out, it's important to move them to the end of the collections section of your store. This ensures that your customers can still see them, but that they're not as prominently featured as products that are currently available for purchase. Additionally, by moving the sold-out products to the end of the respective collection, it will be easier for customers to find the products that are available for purchase.
2. Use a Custom CSS "Sold Out" Badge
When a product is sold out, you can use the custom CSS tag "sold out" to indicate this in your Shopify store. You can use this tag to change the text color, background color, or font size of the text to indicate that the product is no longer available. You can also use this tag to create a custom message that will appear when someone tries to purchase a sold-out product.
Although this is not everyone's cup of tea, those Shopify owners who have CSS coding skills or have a developer on hand can simply add a customized script to any product listing. Failing this, some Shopify themes will have built-in badges that can be turned on and off in the product's settings. Be sure to check this out before committing to using a custom script.
3. Make Use of Alternative Product Apps
In addition to "sold out" badges, store owners can make use of third-party apps that can add related product sections to Shopify product pages. This allows for more flexibility and organization on the product pages and can help increase sales by providing more information to shoppers.
There are several options in the Shopify App Store, the best of which are Bestsellers reSort and Out-of-Stock Police.
Automatically push your out-of-stock items in real time.Get alerts sent to your inbox or the app when products are running low or out.Avoid losing organic traffic by hiding out-of-stock items in a strategic manner.
4. Turn on Back-in-Stock and Preorder Notifications
To combat out-of-stock products, shop owners can also use back-in-stock and preorder notifications, both of which can be turned on in Shopify to help store owners manage their inventory. Back-in-stock notifications notify customers when a product they are interested in becomes available again, while preorder notifications allow customers to reserve a product before it becomes available.
For back-in-stock notifications, you'll have to use a custom alert app, while for preorder notifications, you can use Shopify's in-house settings. To do this, tick the Continue selling when out of stock box in the product's Inventory section. By doing so, you will still be able to continue selling the product when out of stock. The only difference is that the order will be completed when your store once again has the product available in its inventory.
» Discover the simplest way to add a Shopify back-in-stock notification form
Don't Take Your Products off the Market
Unpublishing products that have sold out may seem like a quick fix, but it actually hurts your SEO and rankings and frustrates your customers by sending them to error pages.
It is, therefore, preferable to use methods such as pushing out-of-stock items to the bottom of your collection, applying "sold out" badges to your products, or implementing automated collection rules to simplify your out-of-stock inventory management.
» Learn how to mark a product as "sold out" in Shopify
Learn more about Egnition's Out-of-Stock Police and how it can help you improve your out-of-stock inventory management:
InventoryPreventing Obsolete Inventory in Shopify: 4 Best PracticesAs a Shopify store owner, you may face considerable difficulties if your inventory becomes obsolete.
Obsolete inventory refers to unsold products that are no longer useful or in demand.
Preventing obsolete inventory is essential to avoid wasting valuable resources that could be put to use elsewhere. Although you can dispose of obsolete inventory, it's preferable to prevent it in the first place to minimize your store's losses.
To help you decide how to prevent obsolete inventory, we'll look at four best practices you can employ in your Shopify store to achieve this goal.
» Not sure whether you have obsolete inventory? Here's how to identify it
1. Optimize Your Demand Forecasting
Optimizing your demand forecasts is one of the best strategies for stopping obsolete inventory. Precisely calculating consumer demand for your products can help prevent both understocking and overstocking, which can lead to unsold goods.
Using reliable software can help you predict demand more accurately and guarantee you never have too much product on hand. Also, it's crucial to consider seasonal variations and other elements that could affect demand.
» Make the most out of your Shopify inventory forecasting
2. Perform Regular Inventory Audits
To avoid having obsolete stock, you should conduct inventory audits often. This involves physically counting and confirming the inventory levels in your store for improved inventory management.
While end-of-year inventory audits are useful, they might not be enough to prevent obsolete stock. Instead, performing audits more regularly, like monthly or quarterly, may be a better idea to ensure the early detection of at-risk inventory before it becomes obsolete.
3. Avoid Impulsive Stock Orders
Before placing large product orders for your Shopify business, carefully evaluate your inventory requirements to prevent outdated inventory. While ordering items in bulk can be a good way to save money, you should opt for realistic product amounts and set accurate reorder dates to avoid accumulating unsold inventory.
It's crucial to stay away from rash stock orders based on a hunch or a trend. To make wise order decisions, evaluate your sales data and base your orders around it.
4. Use Reliable Inventory Management Software
To prevent obsolete goods in your Shopify business, dependable inventory management software is a crucial tool. Using real-time inventory tracking can help you adjust your products accordingly and minimize the possibility of financial losses.
In addition to helping you prevent obsolete inventory, reliable inventory management software can help you keep better track of your stock in all aspects, maintaining the constant performance of your Shopify store.
Keep Your Shopify Store Financially Stable
Shopify store owners may suffer severe financial losses as a result of holding outdated goods. By learning how to prevent obsolete inventory and putting these recommended practices into effect, you can ensure your Shopify store keeps operating steadily without having to clear deadstock products.
To make the most out of your inventory, make sure to prevent obsolete inventory before it becomes a problem by opting for automated inventory management, improving your demand forecasting, doing routine inventory audits, and avoiding impulsive stock orders.
MultichannelAchieve Effective Multi-Channel Inventory Management for ShopifyInventory management by itself is undoubtedly hard to monitor, but what about multi-channel inventory sync and management?
Keeping track of your inventory across multiple channels is so challenging most of the time that a multitude of organizations have stepped up. They're focusing on the implementation of best practices and automation software to help you keep everything under control.
This article will explore what multi-channel inventory management is as well as some of the best software to enable you and your customers to get the most out of your Shopify experience.
What Is Multi-Channel Inventory Management?
Multi-channel inventory management (also known as multi-source inventory) is very similar to standard Shopify inventory management with one notable exception: your inventory could be located anywhere around the world and sold through many different channels. This includes retail stores, wholesalers, marketplaces, e-commerce, and warehouses.
Multi-Channel Inventory Management in Practice
Let's say you have an e-commerce storefront in Shopify and decide to sell computer equipment at an affordable price. Inventory management and order fulfillment are fairly easy to keep track of because there are only mouse and keyboard combo sets listed for sale, and all customer orders come through Shopify.
Soon you decide to expand your inventory to include monitor screens. You also start to dream about selling your products everywhere and decide to set up additional storefronts on other platforms: Etsy, eBay, and Amazon. Before long, a large number of orders come through all the platforms, making it suddenly exponentially more difficult to track stock levels.
For example, if you have 25 mouse and keyboard combo sets ready to sell, you could set your inventory to 25 on all your storefronts. However, you're now at risk of overselling. You can try to keep track of everything manually with a spreadsheet, but if you want to keep up with demand, you're either going to have to write a whole lot quicker or adopt a new solution.
That new solution is multi-channel inventory management.
Best Practices for Multi-Channel Inventory Management in Shopify
You want to get the best out of your Shopify storefront—for both you and your customers so that they'll keep coming back for more. Below are some of the best practices to implement for multi-channel management in Shopify:
1. Perform Regular Audits
Regularly check and double-check your inventory to prevent either overselling or ordering in too much supply for the demand you have. Correct inventory metrics will ensure other calculations, such as your inventory to sales ratio, provides you with the correct analysis.
2. Eliminate Manual Processes
If your store is doing well and your inventory is flying off the shelves, it's not possible to write down all the information needed fast enough. To keep up with high demand and bulk edit your inventory, you have to upgrade to something more automated.
3. Use the Right Inventory Management Integration for You
Find the right inventory management integration solution for you and your setup. A wide variety of inventory management apps are available, and not all of them will provide the same functions and benefits.
4. Multi-Channel Inventory Management Software for Shopify
As previously mentioned, if you want to keep up with high demand, you're going to have to adopt some form of automation. To that end, here are a few of the top-rated apps that you can integrate into your Shopify store with ease:
Multi-Store Sync Power by Egnition is ideal for B2B and B2C businesses. The app automates your inventory and product data synchronization allowing you to save time, manage multiple sales channels, and keep inventory in check.Multichannel Importer by CedCommerce imports from eBay, Amazon, and Etsy and has a free plan available.LitCommerce Multichannel Sync by LitCommerce boasts an easy integration and allows you to import and sell on a variety of platforms, including Etsy, Amazon, and eBay.
» For an in-depth understanding, check out this Multi-Store Sync Power review
Why Should You Use Multi-Channel Inventory Management?
Multi-channel inventory management is an extremely useful practice because it introduces more automation to your inventory management, thereby ensuring you don't over- or under-order inventory and removing the risk of overselling across multiple platforms.
All-in-one image masterShopify Image Optimization: Best Practices to Maximize Your Store's PerformanceIf you run a Shopify store, image optimization is an art you'll want to master to ensure better performance. Delivering high-quality, well-optimized images will improve the user experience for your potential customers as well as make your store more likely to rank better on search engines.
If you want to benefit from high-quality images, you may be wondering—does Shopify optimize images? Luckily, the platform does come with some aspects that make image optimization easier. Below, we'll look into what Shopify does to boost your image quality and reduce load times for maximized store performance.
» Consider these reasons to optimize Shopify images
1. Shopify Image Compression
One of Shopify's image optimization strategies to increase your website speed is image compression. This process involves reducing the size of an image by removing unnecessary data and optimizing it for web use without compromising its quality.
Shopify automatically compresses the images you upload to your store, so you don't have to worry about doing it manually. This ensures that all your images load quickly on both desktop and mobile devices, providing a better user experience while making sure that search engines can easily index and rank your store to boost its performance.
2. Selecting the Best Image Format
Another important aspect of image optimization is selecting the right file format for your images. Different formats are better suited for different purposes, so it's important to choose the one that works best for your store. Shopify automatically optimizes images depending on their type and supports a wide range of popular formats such as JPEG, PNG, and GIF.
To make the most out of your image formats, Shopify detects what type of browser your potential customer is using and converts your images to the best format for their browser. No matter how many images you upload to Shopify, this ensures they all show up quickly and look great regardless of the kind of device your customers are using.
3. Cropping & Resizing Your Images
Resizing your images to the right dimensions to fit the screen and look their best is another important factor in optimizing your images. This ensures that they don't take up too much space while displaying correctly across different devices and screen sizes.
Apart from automatically resizing images to fit smaller screens, Shopify will also gently crop your images where necessary according to different screen orientations. However, some pictures will require manual editing, but Shopify accommodates this as well with its built-in image resizing tool, which makes it easy to adjust the image dimensions before you upload them. You can also use this feature to crop and resize existing images in your store if necessary.
» Learn how to make all product images the same size in Shopify
Easily Optimize Images for Shopify With Egnition
All-In-One Image Master
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Properly optimizing your images is an important part of running a successful e-commerce store. While Shopify facilitates image optimization through the automated processes we described above, this alone often isn't enough to ensure customer satisfaction and boost your store's performance.
Luckily, there are steps you can take to ensure well-optimized images and improve the load times across your store, like using Egnition's All-In-One Image Master. With this helpful tool, you can resize and optimize all your product images before uploading them to save time and effort while benefiting from enhanced visual design for improved customer satisfaction and store performance.
» Interested in learning more about this tool? Read this All-In-One Image Master review
Inventory5 Strategies on How to Get Rid of Obsolete Inventory in ShopifyAlso known as deadstock inventory, obsolete inventory can be a serious drawback for e-commerce businesses looking to grow significantly over time.
Obsolete inventory refers to unsold inventory that's no longer useful or in demand.
While obsolete inventory can occur for several reasons, including customer preferences, technology enhancements, or changes in market conditions, it's important to clear it because it can take up your store's space and capital. If you're wondering how to get rid of obsolete inventory in your Shopify store, here are five simple strategies you can employ.
1. Remarket Your Inventory
Remarketing is a great way to get rid of your obsolete inventory and minimize financial losses. If you think the items in your obsolete inventory still have the potential to grab the market, a good remarketing strategy can help you sell them after all.
The elements your remarketing strategy should contain include the following:
Repositioning the items in your online store for greater visibility.Highlighting more product features.Using optimized product images.Advertising the products through different communication channels like email and social media.
2. Provide Discounts
Another simple yet effective strategy to empty your dead inventory is offering marketing incentives like various discounts. While this approach will impact your profit margin, it will grab you more customers as easily as possible. You can initiate this strategy by offering a smaller discount, like 10-20% off, and then increase it as necessary to sell your leftover products.
» Follow these simple steps to create a percentage discount in Shopify
3. Return the Items to Your Supplier
As an effective way to minimize losses, you can also look into whether your supplier accepts returns. Depending on why your inventory is obsolete, you'd ideally be able to exchange your leftover items for one of the following options:
Full refund.Selling the items back at a steep discount.Supplier credit.
While this can result in minor costs because you'll need to pay for shipment, it beats the alternative of having to eat the inventory cost.
4. Try Bundling Products
Creating product bundles is a great way to boost sales of both your obsolete inventory and new products similar to it. With bundling, you can encourage customers to purchase your leftover products by grouping your new products with obsolete inventory that complements them in some way.
Additionally, bundling can create a sense of urgency and encourage your customers to purchase sooner rather than later, freeing up your obsolete inventory and making room to effectively organize new products.
5. Liquidate Your Inventory
If you've tried all the tips we mentioned but still got unsatisfactory results, you can look into liquidating your inventory. However, you should use this strategy only as your last resort if your business is at risk of going bankrupt.
This strategy involves finding a liquidator and selling your obsolete inventory at a steep discount, which they'll then resell to other retailers or customers. While this inventory management option isn't as profitable as other strategies on our list, it can come in handy to free up your store's space and capital for other products. Just make sure you research reputable liquidators to ensure you're getting the best price.
Turn Your Shopify Store's Obsolete Inventory Into Profit
Obsolete inventory can negatively impact your Shopify store in several ways. It takes up valuable space and ties up the capital that you could use to purchase and launch new products as well as invest in other business areas.
That's why you should take the necessary steps as a shop owner to clear obsolete inventory as soon as possible. The above-mentioned strategies are all effective ways to get rid of your obsolete inventory and save costs. By combining these strategies with a reliable inventory management system, you can keep your store organized and profitable in the long run.
Product organizationShopify Categories vs. Collections: What's the Difference?There are two main ways to organize your Shopify products: by collections or by categories. Collections allow store owners to group their products based on a theme or common attribute, while categories allow store owners to group their products based on how they wish them to appear on a store's homepage.
For more context, collections are a good way to make it easy for customers to find what they're looking for, while categories are a good way to create a curated and user-friendly shopping experience for your customers.
What Is a Category in Shopify?
Shopify categories are similar to collections. Although, instead of compiling products into a collection page, categories should be thought of as the product taxonomy of a store. In other words, categories are a way to organize how products are displayed on a shop's home page.
For instance, from a store's homepage, a "Jeans" category may be set. Then, you can add two new subcategories for "Men's Jeans" and "Women's Jeans." This will appear within a store's menu and submenu, respectively, making it easy for customers to find exactly the products they'd like to browse straight from the store's landing page.
This type of menu categorization is particularly important while managing multiple Shopify stores. Seriously, without the right organization, managing just one inventory is confusing enough. Two or more can become a nightmare.
What Is a Collection in Shopify?
So, we're first going to discuss what a collection is and then further look at the two types of collections you can create on Shopify.
A collection is a group of products that are either related by a common attribute or grouped for the sake of navigability. By adding collections, store owners can organize their products in a way that keeps their inventory streamlined and easy to navigate while helping customers to find what they are looking for.
If you're unfamiliar with how to organize collections on Shopify, here are the two types of collections you can create:
Manual collections allow store owners to manually set custom conditions by which they'd like to group products.Automatic collections automatically create collections based on 60 different preset conditions, such as price, title, or vendor.
The Difference Between Shopify Categories and Collections
When it comes to organizing your products on Shopify, you have two main options: collections and categories. Collections are great for grouping related products together, while categories are perfect for sorting items by product type or topic. So, which one should you use?
The answer depends on what you're trying to achieve. Categories are better for when you want to create a specific look or theme for your shop, while collections are more suited for general organization. For example, if you're a fashion retailer, you might create categories for dresses, skirts, and tops while creating collections to categorize items by color or style.
» Struggling to manage your Shopify store's inventory? Learn how to effectively manage inventory on Shopify
Additional Aspects to Consider
Shopify inventory management is super important. If ignored or done incorrectly, it can negatively affect a store's revenue and profit potential. To avoid this, learn everything you can about Shopify inventory management and Shopify inventory tracking.
Selling out-of-stock items is another issue that can plague the reputation and overall manageability of a Shopify store. To avoid these potential headaches, learn how to manage out-of-stock items or what to do when you sell out-of-stock items.
Discover how Egnition's Out-of-Stock Police can automatically push your out-of-stock products down in collections:
Out-of-stockFIFO Management System: The Key to Effective Shopify InventoriesAlthough there are methods and tips for selling when out of stock on Shopify, such as back-in-stock notification forms and monitoring your inventory-to-sales ratio, managing your stock can be the difference between a profitable, customer-serving business and a failed store with all its capital tied into inventory and no sales.
Why Is Inventory Management Important?
Knowing the cost of your inventory will not only help prevent you from over-investing in stock but also help reduce warehouse costs, help monitor theft and loss, and help produce more accurate stock cost values.
The logistics of stock management can become complicated, especially for larger stores. That's why implementing an inventory tracking system is crucial for a smoothly running online store.
What Is the FIFO Inventory Management Method?
The FIFO (first in, first out) inventory management system aims to value a business's inventory in a way that reduces the loss of products because it has expired or become obsolete.
This inventory costing assumption method calculates the inventory cost of the first items that arrived in stock and uses the newest inventory as the remaining stock.
In short, the first stock and its associated costs are used before your new stock.
Why Use FIFO for Shopify Instead of Other Methods?
FIFO is the most widely-used inventory management method and the most accurate when assuming expected costs with the flow of goods.
Additional benefits of FIFO include the following:
Using FIFO in your Shopify automated inventory management system will provide you with the most accurate way to align stock prices and sales.FIFO will help reduce the impact of inflation if we assume that the cost of old inventory is less than newer inventory. Therefore, your net profit will be higher.FIFO will help reduce expired stock and items that have become obsolete.
However, it's important to note that there are other inventory management methods available to consider, such as:
LIFO Inventory Management
The last in, first out method is the opposite of FIFO, where the last inventory purchase is the first to be sold.Average Cost Inventory
It is calculated by dividing the total cost of your goods by the total number of goods available for sale. This produces a single average cost price.Specific Inventory Tracking
It is used when all finished product costs are known. With all aspects known, any of the above methods are appropriate.
Calculating FIFO
To calculate your COGS (cost of goods sold) using the FIFO method, simply calculate the cost of the oldest inventory sold, and multiply it by the number of items sold.
In a formula, this would look as follows:
COGS (FIFO) = (Cost of Oldest Inventory) x (Total Inventory Sold)
Note: If newer inventory (with a higher/lower cost) is used to complete sales, you will need to take this into account.
Example of FIFO Calculations
To gain a better understanding, let's consider the following T-shirt-selling Shopify store, which has inventory purchase data that looks like this:
DateFebruaryAprilAugustQuantity200150200Cost/T-Shirt$10$12$16COGS (FIFO)$2,000$1,800$3,200
Assume you sell 250 T-shirts (Total Inventory Sold) and want to work out your cost price using the FIFO method.As FIFO uses old stock first, the first 200 shirts will be sold from the oldest inventory, February, for $10 per T-shirt (Cost of Oldest Inventory).The remaining 50 T-shirts represent the newest inventory and will be taken from the purchase made in April at the cost of $12 per T-shirt (Cost of Newest Inventory).
The COGS will, therefore, be calculated as follows:
Total Inventory Sold = 250Cost of Oldest Inventory = (200 x $10) + (50 x $12)* = $2,600COGS (February-April) = $2,600 x 250 = $650,000* Cost of Newest Inventory
This will leave your ending inventory as follows:
COGS (April) = 100 x $12 = $1,200COGS (August) = 200 x $16 = $3,200
FIFO Inventory Management: A Must-Have for Shopify Sellers
Correctly managing your store's inventory will make adding products to Shopify collections easier because you'll be able to forecast inventory. You'll have an idea of your stock levels, the cost of stock, and how quickly your stock is being sold.
The FIFO method is a global go-to for inventory management systems, as it will help reduce obsolete products while compensating for the rising prices of goods.