Inventory Genius Method: The Complex Stuff

We've moved through a lot of important topics over the past few weeks of the Inventory Genius Method series, and this week we're getting into the nitty gritty of a few more complex issues related to inventory based businesses. In this post, we're taking a closer look at dropshipping, damages and the ins and outs related to adding a service component to your product based business. We'll breakdown each of these three issues and work through how to best handle each topic.

As we continue our journey into the Inventory Genius Method series, I want you to remember that every story you'll read is real, and every business journey is a lesson for you as you make your way forward on the path to profitability. We have so much to learn from one another as business owners. I'm grateful to each of my clients who've been open to my sharing their stories and lessons in entrepreneurialism.

You can print these posts and highlight sections you find especially important. Or, you may just decide to take notes. Be sure to write down questions as you have them and reach out to me when you are ready for the next step or to share your realization moments with me. I want to celebrate your wins and applaud your efforts as you work to become an Inventory Genius!

Now, let's take a deeper look at three important, and often complex, issues you'll likely come across as an inventory based business owner: dropshipping, damages and service components. 

Not long ago, Leona and I jumped on a consult call. She told me she had been in my membership community for months, and she had followed my trainings and implemented what she could. 

“Now I am stuck,” she said. “I am a franchisee, and while I can control a lot of what we offer and how I run my business, I cannot control everything. I think it is time for someone to help me make my way through some complexities.” 

Whether you are a franchisee, you use dropshipping groups for some of your products, or you have so much debt that you can’t see the forest from the trees, you are very likely ready to become an Inventory Genius. 

Still, there are some complex issues standing between you and the genius you want to become. 

In this post, we will dive into some common complexities that product-based business owners find and how we can address them with the Inventory Genius Method. After reading, you'll gain clarity and may even pick up some creative ways to add avenues for growth and profit to your business.

Dropshipping

When Megan first joined one of my master classes, she had just reopened after a period of time. In her first go around, she had only made $900 in sales over a period of five years. She was exhausted and defeated, so she decided to liquidate everything and close down. However, like many of you, she had the “entrepreneurial bug.” She loved retail and wanted to give it another go. Around the time she opened up again, she found my master class. She knew something had to give, and she had to do things differently this time around, so she bit the bullet and signed up for coaching. 

Megan knew she needed to understand her numbers and pay herself this time. When she started with me, she was making around $1,000 a month. On one of our initial coaching calls, I told her the next benchmark was grossing $10,000 a month. Megan will tell you she inwardly scoffed when I first told her this, but she decided to focus on the right things and get to work. Fast forward two and a half years, and Megan is now grossing around $10,000 a month, paying herself a paycheck, and reducing her debt. She is now ready to add in a new layer—dropshipping. 

The dropshipping method is taking the retail world, especially the apparel segment, by storm. Many major e-commerce stores have been dropshipping for years, but it is fairly new to the world of small, independent retail businesses. 

Dropshipping offers a unique approach to inventory. Instead of laying out the cash for all your inventory and hoping you sell enough to make up for the purchase, dropshipping allows businesses to offer multiple items without the risk of owning that inventory outright. 

The challenge lies in the margin. While purchasing your inventory can give you an edge on margin, especially if you subscribe to the methods described in other Inventory Genius posts, such as buying off-price, conventional dropshipping usually comes with a set price and little to no room to realize excess margin on each sale. 

What most inventory based business owners don't realize is that when it comes to dropshipping most often the margins will be much smaller on the dropshipped product. This is because the shipper is assuming the risk.

Therefore, if you decide to layer in dropshipping to your Inventory Genius business plan, make sure you are doing it with intention. Understand the tradeoff—less margin for less risk—and factor in the volume you will need to sell to balance your margin. 

As retailers bring in dropshipped product and it takes a volume in sales, margins might begin to dip. This is okay, as long as you've planned for it.

Here's how to do dropshipping correctly: track sales from inventory you own and from inventory you drop ship on two different lines. Look at revenue and margin on each separately. As you evaluate these numbers, you'll be able to tweak the formula so that the you can still create an overall net margin and profit on what you're dropshipping.

When Megan and I decided to add dropshipping to her buying and stocking plan, we discussed how she would split her overall sales goal between owned inventory and dropshipping and how she would ensure her gross margin stayed steady. If her low-margin dropshipping sales overtook her high-margin owned inventory sales, she would need to increase her overall dropshipping to offset that deficit. 

If you are considering dropshipping, make sure you fully understand how it will impact your margin and that your sales goal mix is set up properly to give you the net profit you want. Having a plan in place will definitely pay off.

Damages

We all have those customers. They love to shop, yet they constantly return products that happen to fall apart under their care. Or we have those vendors whose products sell so well, but every shipment is bound to have one or two damaged or incorrectly sized items. 

So, what do we do with those damaged items? 

For many product-based business owners, this question never even comes up. They don't even consider it an issue. They open a shipment, pull out a damaged picture frame or snagged sweater, and toss it in the garbage. Or worse yet, they put it in a pile on the shelf in their back room. 

But these items are part of your inventory. You paid for them, and if you are accurately recording those invoices, that inventory value is showing up on your balance sheet and in your point-of-sale system. 

It is important to remove these damages from your inventory on a consistent basis and make sure your loss is recorded properly. 

If you perform a monthly inventory count, that would be the perfect time to get that done. Go through your point-of-sale system, damage out your damages, print out a receipt, and make sure to turn that into your bookkeeper. There is no use showing the value of inventory on your books when some of that inventory is worthless! 

Adding Service to Your Product-Based Business

I firmly believe that the best companion to inventory is service. While margin caps at a certain point with inventory sales, service can create margin-rich sales that complement your inventory and ultimately grow your net profit by leaps and bounds. Think of adding a service based component into your product-based business like a styling program, a membership, or a design service. 

Anything that exchanges time for money is a great way to add margin-rich sales to the top line and profits to the bottom line. Think creatively and ask yourself what problem your business solves for your customer (not just what products you sell). Use the solutions you sell to create a service that can be added into your business model. Could you teach a course? Could you add a design service? Could you add a membership component to your business? There are many ways we can add service to our business. While it might seem complex, it can add profitability to our businesses. 

If you're looking for next steps beyond these blog posts, take a look at a few resources and tools:

First, I'm excited to invite you to get started with the Quickstart to Inventory Genius. 

The Quickstart to Inventory Genius is my keystone coaching roadmap. Three modules will quickly layout five things to focus on in your inventory based business. You can implement these five strategies right away in order to drive immediate profit. And with the Quickstart, I GUARANTEE that you'll double your investment through either making, saving, or finding that amount in PROFIT. The Quickstart really is the perfect way to get your inventory based business on the right track.

You may also consider joining the waitlist for my top tier mastermind program. The Profit Accelerator Mastermind is a profit strategy program that delivers amazing results for all types of inventory based business owners. It's a chance to work one on one with me and to dive into cash flow, debt management, and the profitability of your business. Interested in learning more? Join the waitlist here.   No need to commit now! Joining the waitlist just means I'll send more information as spaces open up.

And if you want to dive deeper into the resources on my website, I hope you'll tune into The Inventory Genius podcast. The podcast is a one stop shop created just for product-based business owners. In the weekly episodes, you'll learn about all things inventory, time management, profit planning for retail, and more. You'll hear a variety of interviews, deep dive conversations on the nitty gritty bits of business ownership and a few fun and random episodes along the way.

Be sure to check out this episode of the Inventory Genius podcast related to the complex issues in inventory based business: dropshipping, damages and adding a service component to your inventory based business.

And if you've made it this far, you obviously know about the blog. It's packed with invaluable information across a variety of topics. Looking for posts related to this one? 

→ Four Part Simplify Business Series  - A four part series where I tackle common inventory based business questions. I use my Inventory Genius Method to break the answers down into simple steps. These bite-sized, actionable steps give you one task at a time to understand, complete and implement in your own business.

→ Inventory and How it Works in Your Business  - Learn why and how your inventory is directly connected to your business' profitability.

Take a closer, more in-depth look at the three key things you can do if you know the numbers on your profit and loss statement are accurately recorded, yet you still find a net loss when you scroll to the bottom:

→ Increasing Sales  - More money on the bottom line. More cash in the bank account. A paycheck for you. All three of these goals can be achieved by increasing the top-line sales.

→ Increasing Margin  - You won’t simply be guessing, buying, guessing wrong, marking down, and repeating this ugly and unproductive cycle. You will be buying smarter, and buying smarter means more margin.

→ Decreasing Expenses  - Understand your numbers, so you can make wise choices about growth. Focus on managing your inventory, so it is working for you, writing you a paycheck from day one.