How to Maintain Stock Levels and Reinvest Profits
Papillon believes in helping people to start sustainable small businesses which they can manage full time or on a part-time basis. It is for this reason that we host the Annual Boost Your Business competition, which runs from January to October each year. Sell the most Papillon products during this period, and you are a winner. What does winning the competition mean? It means that you get stock for FREE and have the opportunity to start and run your own sustainable small business.
You can decide how you want to spend the profits made from the free stock you sell, but we have a couple of suggestions to help you build a long-term successful business. Please also note that these principles apply even if you do not win the competition, so don’t stop reading.
Most small business owners start out by pocketing whatever the business earns and considering any profit to be their “salary”. But, if you don’t put some of that money back into your business, your business will not grow. One of your biggest goals as a small business owner is to increase profits, but you’ll earn the same amount year after year (or have very slow growth) if you don’t put a portion of your profit back into your business.
You cannot have a business if you do not have stock, so making sure that you do not run out of stock is imperative to ensuring customer satisfaction!
Our suggestions are:
- Reinvest some of your profits by buying stock and focus on the top sellers. Remember the 80/20 rule – 80% of your sales are made from 20% of your stock. Communicate to your customers that you only keep stock of top-selling products and if they want items that are not in stock, they can order it.
- Determine a minimum stock level and order quantity – this is determined by calculating your average sales over a period of time. This will give you a good indication of your monthly average sales. Then, decide if you want to always have at least one month’s worth of stock on hand or two months’.
Here’s an example (we are only using two items to keep things simple):
Your average sales per month on F44 is 5 units per month and 10 units for F32, and you’ve decided to keep one month’s sales as stock on hand. You’ve just done a stock count and you have the following on hand:
- F44 – 2 units on hand (average monthly sales of 5 units).
- F32 – 5 units on hand (average monthly sales of 10 units).
This will mean that you must order:
- 3 units of F44 (5 average monthly sales minus 2 units of stock on hand) to maintain your minimum stock level of 5 units.
- 5 units of F32 (10 average monthly sales minus 5 units of stock on hand) to maintain your minimum stock level of 10 units.
If you decide to keep 2 months’ sales as the minimum stock level, then your order to maintain this minimum would be as follows:
- 8 units of F44 (5 average monthly sales x 2 months = 10 minus stock on hand of 2 units) to maintain your minimum stock level of 10 units.
- 15 units of F32 (10 average monthly sales x 2 months = 20 minus stock on hand of 5 units) to maintain your minimum stock level of 20 units.
- Do the calculation above on a monthly basis! The management of your inventory, is crucial to the success of your business. If you hold too much inventory, you run the risk of getting stuck with inventory that you can’t sell. If you hold too little inventory, then you are risking running out of stock and the loss of customer trust.
By reinvesting your profits and ensuring that your stock levels are always accurately replenished, coupled with selling our top-quality products, you should be well on your way to making a success of your small business.