If you sell products, you may find yourself with excess inventory at some point — items you thought you’d sell, but for some reason haven’t yet been able to. Excess inventory ties up cash in products, prevents you from ordering more items with a better chance of selling, and incurs additional costs for warehousing and storage.
However, you’re not necessarily stuck with your excess inventory. You can turn that surplus stock into cash that you can invest in other parts of your business.
What is excess inventory?
Excess inventory, also known as overstock, consists of products that haven’t sold yet — and you’re not anticipating they’ll sell anytime soon. Often this surplus stock is kept for weeks, months, and even years without being sold or used.
Excess inventory is often a result of poor inventory management, a bad product launch, or unpredictable market demand. It can result in revenue loss and cause other financial burdens.
How can you cash in your excess inventory?
Here are five ways to cash in on excess inventory. The best method for you depends on the goods — and quantities — you have on hand.
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 higher returns 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 an excellent format for maximizing your excess inventory’s value.
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 like Merchandise USA. These companies buy a wide range of customer-returned and excess inventory.
3. Open a sales channel for your business on eBay.
If you must get rid of your inventory but want more control over the sales channel than you get when using an inventory liquidator, eBay is an excellent option.
Opening a business seller account on eBay can be a great way to sell excess inventory at competitive prices. You can get rid of overstock and expand your revenue sources.
Setting up an eBay store is a cheap business idea whether you have excess inventory or are trying to get started selling online.
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, courtesy of Internal Revenue Tax Code Section 170 (e)(3).
The National Association for the Exchange of Industrial Resources (NAEIR) takes donations of new, overstocked or discontinued products such as school and office supplies, toys, games, building materials, clothing, tools and much more. It redistributes these items to schools and nonprofits nationwide; donor companies can receive an enhanced income tax deduction of up to twice the cost of the goods. NAEIR also provides the paperwork to help when 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; 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.
Check with a tax consultant or your in-house CPA to ensure you understand federal income tax deductions related to donations.
5. Run giveaway campaigns with excess inventory.
Excite loyal customers by giving away discounted items from your excess inventory stash. This helps you recoup money while placing your products in customers’ hands.
“Use the excess inventory items to give out as a reward to loyal customers or those who have accumulated a certain amount of points,” suggested marketing specialist Igor Mitic. “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.”
Here are a few other giveaway ideas:
- Recruit your social media followers. Ask social media followers to share posts for discounted or free items to help increase brand awareness online and put your business in front of new potential customers.
- Work with social media influencers. Try to get influencers to market your products by giving them excess inventory. They might even be willing to post a good customer review if they’re impressed. “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.”
It’s crucial to understand legal considerations for social media contests and giveaways, including specific rules set by various social media platforms.
How does excess inventory cause problems for your business?
Excess inventory can be a serious financial drag for any business because it causes the following problems:
- Excess inventory necessitates carrying costs. Excess inventory incurs expenses like storage, capital, service and inventory risk costs. These expenses can become a significant financial burden on your business.
- Excess inventory eats into your profits. The longer you hold onto a product, the cheaper it becomes — and the less you’ll make from it in the future. This results in lost revenue and a lower profit margin.
- Excess inventory turns into obsolete or expired stock. Over time, your inventory might become useless or obsolete. It can completely lose its value and be a loss you must write off.
- Excess inventory causes 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 pricey and would otherwise be unnecessary.
Optimizing your warehouse operations is crucial to ensure inventory accuracy, monitor inventory turnover, and avoid potential overstock situations.
What causes excess inventory?
There are many reasons why a business might end up with excess inventory. Here are a few typical ones:
- Inaccurate forecasting and predictions. If your business inaccurately forecasts product demand, you might overcompensate and end up with too much inventory. Your predictions should consider factors like market data and sales history.
- Poor inventory management system. Your inventory management team handles ordering and purchasing products and materials while coordinating with other teams. If this system is faulty or disorganized, you can easily end up with excess inventory.
- Unreliable vendors. If your suppliers are unreliable, you might overcompensate to avoid insufficient inventory, ending up with more stock than you need. For example, if deliveries are often late or products are frequently back-ordered, you may overbuy or order too far in advance, leading to excess inventory.
- Lengthy lead times. Those involved in your supply chain distribution, whether they’re vendors or manufacturers, might provide long lead times that make it challenging to predict how much to order. When this happens, you might feel the need to keep more stock on hand just in case.
- Demand variability. If your product demand varies monthly, ordering the right amount of stock becomes a challenge. That might lead you to play it safe by ordering extra rather than risk not having enough.
- Shifts in market demand. As new products arrive, others may experience a dip in demand. For example, when everyone started carrying a smartphone, sales of wristwatches dropped because people began checking the time on their phones. If you sell a trendy product, new trends may supplant it, or economic changes may alter customer demand.
The best POS systems include inventory-tracking functionality to help you keep excellent records, recognize trends, stock top sellers, and adjust ordering according to current circumstances.
Can you keep your excess inventory?
Sometimes keeping your excess inventory is advisable — if you have the space to store it and your products have a longer life cycle. “Having excess inventory definitely helps by removing the risk of revenue loss due to out-of-stock issues,” said Jeremy Ong, vice president of business operations at Delphi Digital. “This is, of course, only applicable if you have products that are nonperishable and have enough operating cash flow to support excess inventory.”
Obviously, holding onto perishable inventory doesn’t make sense. Local grocery stores shouldn’t run giveaways to offload rotten fruit, and you shouldn’t donate expired products.
Excess inventory concerns depend on your business type and industry. However, if overstock negatively affects your cash flow and operations, there are ways you can move forward and keep your business healthy.
Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.