Inventory tracking is something that is confusing to many new
entrepreneurs. Many of the women I have talked to that have home-
based businesses which deal with inventory don't really
understand the importance of inventory tracking. At first it is a
little confusing and it may seem like a waste of time, but over
the long-run, inventory tracking is vital to any business that
deals with inventory.
When you understand the importance of inventory tracking, you
will recognize the benefits of it and that will make it seem more
worthy of your time. In big businesses, with lots of employees,
inventory tracking is essential to accurately calculating the
cost of good sold and identifying problems with profit margins.
Waste of perishable inventory and loss of inventory to theft
becomes pretty evident when profit margins drop drastically.
Inventory tracking is the technique that brings problems like
these to light.
In a small internet business, especially an owner-operated
business that has no employees, people don't always see the value
of inventory tracking. There are three reasons that inventory
tracking is important for your home-based internet business.
First, inventory tracking is necessary in order to accurately
calculate your cost of goods sold and relatively, your profit
margin. Second, inventory tracking will assist in ordering
products for resale ensuring that you don't run out of stock.
Third, inventory tracking that is integrated with an automated
sales system ensures that your customers receive exceptional
1. Inventory Tracking and Cost of Goods Sold
In order for your income statement to be accurate, you simply
must know your cost of good sold figure. Inventory tracking will
make it easier to calculate your cost of goods sold without doing
a physical inventory of your merchandise each and every month.
However, if you move a lot of inventory, it is a good idea to do
a physical inventory periodically, even if you don't do it
To calculate cost of good sold, you take your beginning
inventory, add your inventory purchases, and deduct your ending
inventory. The figure that you get will be your cost of goods
sold. On your income statement, your gross revenue less your cost
of good sold is your gross profit. When you divide your gross
profit by your gross revenue, the result is your profit margin.
Most businesses identify an ideal profit margin, generally around
40%. Fluctuations in your profit margin indicate a problem with
your inventory tracking, or with the inventory itself.
2. Inventory Tracking for Managing Inventory Levels
Inventory tracking for the purpose of maintaining sufficient
levels of inventory will simplify your ordering process. When you
know how many of a certain item you have in stock, you will
easily be able to determine how many you need to order when it
comes time to place an order to replenish inventory. Inventory
tracking can often be incorporated into your sales system so that
your inventory levels are up-to-date all the time.
3. Inventory Tracking to Improve Customer Service
With a good inventory tracking system that is integrated with an
automated sales solution, your system can tell customers right
away whether or not an item they are ordering is in stock. With
such a system, customers will be immediately informed of the
inventory status, or backorder status of their order. This adds a
special touch to your customer service program and makes
customers feel better when dealing with you impersonally via the
These are the three main reasons that inventory tracking is
important for an online business. There are a number of inventory
tracking software programs that can simplify the process of
inventory tracking; although you can do it manually using a
spreadsheet, or even a ledger book. However, if you want the
advantage of integrating your inventory tracking system with your
sales and order processing system, it is best to choose inventory
tracking software that is compatible.
Copyright Christopher J. Enders. Are you at the end of your rope,
fed up and confused by all the scrambled internet marketing
advice you're getting? Whether you are new to internet marketing,
or a website owner who wants to make more money from your
website, learn the proven strategies that will sky-rocket your
internet business at http://WebMarketingFacts.com.
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