Inventory management can be a challenging task. You don't want too much inventory sitting idly in your business or a warehouse, but you also want enough inventory to fulfill all orders that come in. It's a tricky situation. When you find that your business has excess inventory, it's easy to get concerned.
What is excess inventory?
Excess inventory, also known as overstock, are products that have not yet been and are not anticipated to be sold. In other words, the stock exceeds demand. Often, this stock is kept for weeks, months and even years without ever being used or sold. This is often a result of poor inventory management or unpredictable market demand. It can result in loss of revenue and cause other financial burdens. [Read related article: 7 Inventory Management Techniques]
The problem with excess inventory
Excess inventory can be a serious financial drag for any business. But knowing what to do with excess items – no matter what they are or where they came from – can be a dilemma. Selling what you have through normal channels – special sales, for example, or online – may be out of the question. After all, the reason you have the surplus is that your regular outlets haven't done the job.
You may also be running out of space to continue storing the extra load. There are several tactics that can either get you a cash return on your items or a nifty tax write-off. Some of these services are places where you can buy as well as sell excess inventory.
Causes for excess inventory
There are many reasons why a business might end up with excess inventory. Here are a few common ones:
- Inaccurate forecasting/predictions. If your business inaccurately forecasts product demands, you might overcompensate and end up with way too much inventory. Your predictions should take into consideration various factors, like market data and sales history.
- Poor inventory management system. Your inventory management team handles tasks like ordering and purchasing products and materials while coordinating with other teams within your business. If this system is faulty or disorganized, you can easily end up with excess inventory.
- Unreliable vendors. If your suppliers are unreliable, you might find yourself overcompensating to avoid insufficient inventory, ending up with way more stock than you need. For example, maybe their deliveries are often late or products are frequently back-ordered, so you overbuy or order too far in advance, leading to excess inventory.
- Lengthy lead times. From vendors to manufacturers, those involved in your inventory chain might provide long lead times that make it difficult to accurately predict how much you should order. When this happens, you might feel the need to keep more stock on hand just in case.
- Demand variability. It's difficult to order the proper amount of stock when your product demands vary from month to month. To ensure you don't fall short, you likely played it safe by ordering extra rather than risking not having enough.
Disadvantages of excess inventory
Excess inventory comes with many issues that can impact your business's bottom line. Here are some of the disadvantages of having excess inventory:
- Carrying costs. Expenses like storage costs, capital costs, service costs and inventory risk costs can add up when you have excess inventory to worry about. This can become a major financial burden on your business.
- Loss of profit. The longer you hold onto a product, the cheaper it becomes and the less you will make off it in the future. This results in lost revenue and a lower profit margin.
- Obsolete or expired stock. As stated above, over time, your inventory might become useless or obsolete. In other words, it can completely lose its value and be a loss that you have to write-off.
- Lower storage capacity. When you have more inventory than expected, your storage unit might become too full to store new, necessary inventory. As a result, you might need to invest in more storage, which can be extremely pricey and would otherwise be unnecessary.
How to cash in your excess inventory
Here are six ways you can cash in on excess inventory. The best method for you depends on what goods you have on hand and in what quantities.
1. Unload excess inventory in bulk, business to business.
Retailers, wholesalers, manufacturers, distributors and others can sell goods via centralized liquidation auctions. For example, Liquidation.com is a B2B bulk marketplace, where companies sell all kinds of excess goods. It welcomes inventory from small businesses to sell on its auction marketplace and has a track record of providing returns higher than other liquidation methods.
Using inventory liquidators is an easy way to get some cash for your excess inventory. Such platforms can be a good way to get the best bang for your buck, and the auction setting can be a good way to maximize the value of your excess inventory.
2. Net instant cash on your excess inventory.
If you need cash for your excess inventory quickly, you can avoid the bother of auctions by selling to a surplus inventory liquidator. Liquidators, Merchandise USA, and Power Retailing all buy a wide range of customer-returned and excess inventory.
3. Open a sales channel for your business on eBay.
If you need to get rid of your inventory but want more control over the sales channel than you get when using an inventory liquidator, eBay is a good option.
Opening a business seller account on eBay can be a great way to sell excess inventory at competitive prices. Setting up your business seller account is free and simple. Be sure to check out the selling guide that walks you through the process with tips and advice. Visit the eBay Seller Center to get started.
4. Donate your excess inventory for a juicy tax deduction.
Your incorporated business can earn an above-cost, federal income tax deduction, clear out warehouse space, avoid liquidation nightmares, and help schools and nonprofits at the same time. The National Association for the Exchange of Industrial Resources takes donations of new, overstocked, or discontinued products and redistributes it to schools and nonprofits nationwide.
Donor companies can receive an enhanced income tax deduction of up to twice the cost of the goods, courtesy of Internal Revenue Tax Code Section 170 (e)(3). NAEIR takes donations of consumer goods such as school and office supplies, toys, games, building materials, clothing, tools, and much more. NAEIR also provides the paperwork to aid in filing taxes.
You can deduct the cost of goods sold, as carried on your books, plus half the difference between cost (basis) and the fair market value, except that the tax deduction cannot exceed twice the cost. For example, items carried on the books at a cost of $100 that have an established fair market value of $200 may be donated, and a deduction of $150 may be taken. If, however, those items carried at a $100 cost have an established fair market value of $300, they may be donated, and a deduction of $200 may be taken.
5. Run giveaway campaigns.
You can excite customers by giving away discounted items from your excess inventory stash. This helps make your business some money, and it helps put your products in the hands of customers.
"Use the excess inventory items to give out as a reward to loyal customers or those who have accumulated a certain amount of points," said Igor Mitic, co-founder of "Another way is to create promotions where customers are rewarded for sharing posts on Facebook or Instagram, or participating in online polls or surveys, and convert the excess inventory into marketing."
Asking social media followers to share posts for discounted or even free items helps spread your business's social profiles. This can extend your brand reach and put your business in front of new potential customers.
Another option is to give the excess product or products away to influencers in your industry. They might be willing to review the product, or they'll just use it, and your business will have its product being used by an influencer in your industry.
"When I was running a store, we got stuck with a little over 20 units of a specific product and didn't know what to do with it, " said Ruth Even Haim, co-founder and head of marketing at StilyoApps. "We ended up selling a few more units using post-purchase upsells and giving the rest away to small influencers who agreed to create a review of the product for free."
Giving a product to an influencer is a creative way to get rid of excess inventory while still benefiting your business. If you have a lot of excess inventory, you may decide to use multiple methods of unloading it. For example, you might take some of your inventory to an inventory liquidator while keeping just a few pieces of inventory to give to influencers.
6. Plan ahead.
To avoid the problem of excess inventory in the future, consider using inventory management software to keep better track of your goods. When it comes to avoiding excess inventory, the planning process is key.
"The best way to avoid excess inventory is by having excellent recordkeeping, automated inventory management and only stocking top sellers," said John Dinsmore, associate marketing professor at Wright State University.
Sometimes, if you have the space to store it, it's also not the worst idea to keep your excess inventory. Depending on the products your business sells, you may find that keeping excess inventory on hand isn't a problem.
"Having excess inventory definitely helps by removing the risk of revenue loss due to out-of-stock issues," said Jeremy Ong, founder of HUSTLR. "This is, of course, only applicable if you have products that are nonperishable and have enough operating cash flow to support excess inventory."
If your inventory is perishable, however, keeping obsolete inventory isn't feasible for your business. Local grocery stores shouldn't run giveaways to offload rotten fruit, and expired products shouldn't be donated either. For some companies, keeping obsolete inventory is a very real concern. For others, keeping excess inventory isn't a major issue, because the business's products have a longer life cycle.
Additional reporting by Sammi Caramela.