Reducing the Cost of Maintaining Inventory

Whether you have a traditional brick and mortar storefront, or run an online business and work through shipping only, one of the biggest expenses for most is leasing space for inventory and operating. Anytime you can keep you base operating costs lower, you are able to maintain a higher profit margin while keeping competitively priced for increased volume in sales. It goes further than just find a place with lowest cost though.

iPad inventory
photo credit: bump

Adequate storage for inventory offers many other cost savings and opportunities for increased profits as well –

  • The ability to reduce per item cost by purchasing in greater volume
  • Fewer lost sales by offering greater variety
  • Take advantage of special out of season pricing and holding until seasonable
  • Increased sales through greater customer satisfaction with reduced back orders
  • Adequate storage solutions can reduce lease costs of retail space

The key to realizing any or all of these savings is in properly balancing the potential for increased profits and sales against expenses. Holding inventory for too long ties up invaluable capital needed for day to day operations. In addition, the cost of the space used for storage is direct expense to be considered every month. There are creative ways to balance these costs.

Actual retail store space is very expensive in most areas. In addition to the cost of the floor space, other associated costs such as insurance and utilities are directly related to the square feet you have in retail space. If you are paying for 1000 square feet of retail space, you do not want 50% or more of it to be behind a wall used as storage- it is simply too expensive. The alternative is fewer items overall available so all can be held in reasonable variety and selection on the retail space, or to have offsite, lower cost by nearby storage. This reduces the cost for high priced retail space while allowing for both bulk purchasing and rapidly restocking shelves.

If you do most or all of your business online, then commercial or retail space is an unnecessary expense. All you need is room for storage that is safe, dry, and conveniently accessed for shipping. Commercial warehouse space is fine for very large businesses but is not practical for the typical niche business or start-up. It is however very easy to outgrow you basement or garage and use of your home may cause zoning issues in some stricter areas, plus increase the costs of shipping due to the fact many places charge extra to ship to a residential address.

Self storage facility
photo credit: lonely radio

The use of a good climate controlled (if needed) properly maintained business self-storage facility such as Safestore in the UK can work in both situations. There are several advantages in using this type of storage.

  • Short term leases allow flexibility – you can move from larger to smaller spaces according to need and are never paying for more than is needed.
  • With self-storage you will not need to hire additional warehouse employees usually.
  • The storage facility often includes basic insurance coverage and utilities so costs are all inclusive
  • Most sites offer 24 hour or near 24 hour access for ease in both accessing yourself and the receiving of truck shipments.
  • Very low upfront costs allow you hold onto capital for investing in merchandise
  • Can be used as your main storage area or on an as needed basis seasonally

The important things to look for in offsite self-storage are the term of the lease or rental. In general shorter terms allow for greater flexibility. Also look at the overall capacity of the company you select. If you need additional space some month will they have it available to you? Ask to see their security features such as night lighting, and CCTV coverage. If you intend to use their insurance as your protection make sure it is clear what the limits of coverage are – in the event of a disaster you do not want to be holding the tab on all your inventory without adequate coverage.