Setting a reserve quantity is one of the most important aspects of selling online. If you want to protect yourself from the possibility of overselling designating a set percentage or amount of your stock as not for sale can ensure that you never are short. We will talk about why over selling happens, what is a reserve quantity, and how you choose your reserve quantity
Why Does Overselling Occur?
Overselling refers to when an online seller receives orders for more inventory then they have on hand and cannot meet their obligation to their customers. Often this leads to canceled orders, substitutions, or refunds that can result in a negative experience. Overselling can occur for many reasons, but there are some common reasons.
Incorrect Inventory Count
Whenever you are dealing with physical inventory there is always some degree of error. This can be due to a number of things including manufacturing, loss in shipping, damage, theft, or even human error when counting inventory. When you have a high volume of orders it is easier to overlook discrepancies in the inventory count which can quickly lead to overselling.
If you are like most sellers and are managing your inventory through software this means that information has to be exchanged between your software and your marketplaces. Many times there is a delay even with continuous inventory management systems. Depending on the system you are using this sync delay can be anywhere from just a few minutes to up to a few hours with less efficient systems. In this short period of time you may receive many orders before your quantity available updates to zero.
Data Entry Errors
A common cause seen among those who manage their inventory without third party software is data entry errors. These errors can lead to overselling if the incorrect amount of stock is represented on a given listing. For example, if you have 8 units available it is very easy to type 9 units or 88 units into the availability box instead of the correct number.
Reserve Quantity Definition
A reserve quantity is an amount of inventory that has been designated by the online seller as not for sale. This means that no orders are allowed to be completed against these units until they have first been made available again to the public, either through being sold or returned. Setting a reserve quantity ensures you never oversell your inventory and protects you from the negative consequences associated with overselling.
How to Choose Your Reserve Quantity
Now that we have a better understanding of what overselling is, why it happens, and what a reserve quantity is let’s take a look at how to choose your own reserve quantity.
When choosing your reserve quantity there are two main things you should consider:
The first thing to take into account when choosing a reserve quantity is your own risk tolerance. This means how much of a loss you are willing to absorb in the event that you do oversell and have units returned or canceled from an order. In general, it’s best practice not to choose a number that is less than 5% of your stock.
If you are a brand new seller it’s best to start off with a higher reserve quantity in order to protect yourself from overselling at first while the number of units available has yet to be tested. For example, if you have 500 items for sale starting out with a 100 unit reserve would be a good place to start. As you become more confident in your ability to manage inventory without overselling it’s reasonable to lower the reserve quantity until you reach 5% of your units available.
Regardless of your risk tolerance another thing to consider is the sales velocity of a given item. Some items can have very high sales velocity and even sell out in seconds. Other items can have very low sales velocity and only sell a few units over an entire year. It is important to take into account the average sales velocity of an item when choosing a reserve quantity.
Items that sell faster are more likely to be effected by sync delays or miscounts and it may be wise to reserve a higher percentage of this stock to ensure you can fulfill all orders. For items that sell slower, it is wise to reserve a much smaller percentage of available stock as the risk of overselling is much less.
Depending on the average sales velocity and your own personal tolerance for risk it’s best to aim anywhere from a few units to as much as 50% as a reserve quantity for your products when using marketplaces like Amazon or eBay. Keep in mind that the higher you go, the more effort it will take to sell units that are remaining as you may have to adjust your quantity in reserve multiple times.
Setting a reserve quantity is one of the most important aspects of selling online. If you want to protect yourself from the possibility of overselling your designating a set percentage or amount of your stock as not for sale can ensure that you never are short. We discussed why over selling happens, what is a reserve quantity, and how you choose your reserve quantity. Establishing an appropriate threshold for inventory levels means anticipating supply needs while still generating enough revenue to meet business goals. This balance requires accurate forecasting techniques and understanding order patterns in relation to demand volumes.