The buyer experience doesn’t end at checkout. The next steps — packaging, shipping, and delivery — have a huge impact on customer satisfaction. Good inventory management is essential for happy shoppers, repeat purchases, more sales, and a great reputation. How do you use Shopify’s inventory management features?
The Basics of Shopify Inventory Management
In simple terms, inventory management means always having the right amount of products on hand to meet demand. The goal is to avoid running out of stock when customers are ready to buy. At the same time, you want to avoid overordering, which eats up your cash reserves.
Shopify includes user-friendly tools for inventory management. Once you set them up, they simplify the process significantly.
1. Turn on Inventory Tracking in Shopify
You can automatically track inventory levels for products you sell on Shopify with a few clicks. Here’s where to go:
- From your Shopify dashboard, go to the Products tab.
- Select the product you want to track inventory for.
- Scroll down to the “Inventory” section.
- If the “Track quantity” box isn’t activated yet, click on it.
- Click “Save.”
To edit the available inventory for individual products, navigate from your dashboard to the Inventory tab instead. This area allows you to change the available and on-hand units for your stock.
2. Store and Track Product Size Variants Independently
Shopify treats variants like unique items with their own stock-keeping units. Tracking is available for different sizes, colors, styles, materials, prints, and other categories. After adding product variants on Shopify, you can manage their inventory levels just as quickly:
- Go to the Products tab, and choose the primary product from the list.
- Scroll down to the “Variants” section.
- Select “Add options like size or color.”
- Choose up to three descriptive categories per variant. For example, one variant could be an “X-Large,” “Red,” and “Long-Sleeve” men’s shirt.
- Add available inventory for the variant.
- Click “Done” and “Save” to finish.
What about your warehouse? To avoid mistakes with inventory management, store similar variants near each other but separately, such as in compartments. Otherwise, it’s too easy for employees to ship the wrong size or design.
3. Develop a Clear Policy for Handling Returns
Returns can throw a wrench into inventory tracking, messing up stock levels, causing confusion, and leading to errors in customer orders. Without a clear store policy, many employees don’t know how to manage returns correctly.
Being transparent and consistent helps. For premium items, include a quality inspection to make sure the product is still in good condition. Restocking fees are common.
Some Shopify stores don’t offer returns at all, especially for personalized products or items with a high shipping cost. Other business owners swing the opposite direction, offering “return-free” refunds with store credit and avoiding the inventory conundrum completely.
4. Understand Shopify Sales Metrics
One of the best ways to improve inventory management is to get better at forecasting sales trends. Shopify analytics show which products are moving quickly, which aren’t selling at all, and how many sales you can expect during seasonal surges.
Here are a few recommended metrics for inventory tracking:
- Days on hand: How long it takes to sell the product/variant on average (lower is better)
- Inventory turnover ratio: How frequently you sell through your inventory every week/month/year (higher is better)
- Sell-through rate: The percentage of inventory you sold versus received (higher is better)
- Lost sales ratio: The number of cart sales you missed because items were out of stock (lower is better)
- Rate of return: The percentage of sold products that customers returned (lower is better)
Your home for metrics on Shopify is the Analytics tab on your dashboard. From there, you can view premade reports or customize your own.
5. Learn How To Forecast Inventory Needs for New Items
Usually, businesses look at historical data to identify sales trends, such as year-to-year comparisons. But with new products, you don’t have much data to pull from.
To get around this obstacle, measure trends with product categories. For example, if you tend to sell triple the number of pajamas in November and December, you can calculate the rough demand for new pajama styles, robes, nightgowns, night shirts, and other sleepwear.
Another option is adding preorder functionality to your store. That way, you base stock levels on the amount of interest you get.
6. Use an Inventory Management App for Shopify
Shopify makes inventory tracking easy, but it doesn’t always have the in-depth features needed for a quickly scaling e-commerce store. For example, Shopify only tracks inventory metrics for a maximum of six months. This makes year-over-year sales comparisons impossible — without a little help, that is.
Shopify apps fill in the gaps, providing the right functionality for your store’s needs. Here are a few ways they can help:
- Syncing your sales and inventory on Shopify with other online platforms, including Etsy, Amazon, eBay, and TikTok
- Increasing the number of store inventory sources you can manage simultaneously
- Tracking inventory movement, demand, and sales trends for years instead of months
- Letting you bulk edit hundreds of product inventory entries at once, including variants
- Offering real-time tracking for customer orders and packages
Some highly rated apps for inventory management on Shopify include QuickSync, syncX, LitCommerce, CedCommerce, Hextom, and DPL.
Inventory Management Best Practices for Retail, E-Commerce, and B2B
What inventory management looks like for your Shopify store depends on your business model. E-commerce, brick-and-mortar, dropshipping, and wholesale all have unique challenges and solutions.
7. Reduce Return Rates With Improved Product Sizing
If returns are adding to your inventory management costs, eating up valuable time, and leading to a poor customer experience, you need to fix the root of the problem. In many cases, a high volume of returns means shoppers can’t find enough sizing information.
In the U.S., online shoppers are 700% more likely to return a product compared to in-person shoppers. But your store can (and should) be different:
- Use the sizes your audience knows: Make sure your sizes (S, XL, DD, 10 ½, etc.) match the country where shoppers browse from.
- Provide more detailed size info: Define sizes in terms of hip, waist, and bust measurements instead of vague number ranges.
- Include product pictures and videos: Show shoppers how the clothing fits a real person (e.g., loose, comfy, tailored, or tight).
- Offer personalized recommendations: Set up automatic sizing charts that tell customers which size is the closest fit for their body measurements.
Shopify apps like Kiwi Sizing can help you manage all of these improvements from your store dashboard. Whether you sell fashion apparel, exercise wear, intimates, footwear, or auto parts, better sizing is a game-changer for returns.
8. Create Inventory Categories
Managing inventory is more efficient when you group products with similar sales characteristics. Many retailers use the ABC method to figure out which items to prioritize. Groups could include:
- Your fastest-selling items (A)
- Products that deliver your biggest profit margins (A)
- Premium products that take longer to sell but deliver good profits (B)
- Average movers (B)
- High sellers with low profit margins (B or C)
- Slow movers (C)
Products in the A group are priority items for stock. They’re your bread and butter — critical for the customer experience and store profitability. If you have limited time to manage inventory, this group deserves 80% of your focus.
The B group offers more wiggle room. Lower stock levels are acceptable because you probably have enough time to reorder if needed. The C group is for items that barely impact your bottom line or don’t appeal to your core audience.
9. Verify Stock Levels More Than Once a Year
It takes time to count inventory by hand, especially if you sell hundreds or thousands of different products. But keeping tabs on your physical stock is important for more than taxes.
Can you trust all of your warehouse employees? Periodically counting inventory helps you catch theft ASAP. You can also correct innocent mistakes before they become habits.
Are your suppliers sending the right items or the correct volume? Verifying inventory several times a year alerts you to potential problems. Accuracy at the inventory level translates into fewer headaches with shipping or customer complaints.
10. Organize Your Warehouse Based on Product Priority
Large Shopify retailers and wholesalers can streamline inventory management with improvements to warehouse layouts. Follow an ABC approach when positioning products, but this time based on shipping volume, not profitability.
Keep high movers together, and position them closer to your shipping area. Aim for an overall warehouse capacity rate of about 85% full to get a good return for your overhead costs.
11. Know Your Minimum Selling Price for Products
One of the best ways to deal with slow-moving products is to put them on sale or include them in a bundle with popular items. Inventory sitting idle in a warehouse costs you money, especially if there’s a risk of damage. It’s better to make a small profit than to lose money.
When adding items or variants to Shopify, take a few minutes to calculate your minimum selling price. This number should include your item cost, a percentage of business overhead, and a small profit markup. By referring to this price, you can quickly create attractive deals that still make you money.
12. Receive Inventory ASAP
Many errors in e-commerce inventory levels happen because teams take too long to add received goods to the system. The longer it takes to register items, the greater the risk of mistakes and confusion.
Workers may accidentally open boxes that haven’t been logged to fulfill customer orders. Older goods can sit unsold while new products disappear.
To avoid this problem:
- Have a designated warehouse area for receiving and registering new stock.
- Check order accuracy immediately on receipt.
- Put goods in their assigned spot as soon as they’re in the system.
- Use a first-in-first-out approach to rotate stock.
Depending on your sales volume, you may need one or two workers permanently assigned to inventory management.
Tips for Improving Inventory Management for Shopify Stores
These simple tips can help you avoid common mistakes, improve your results, and lower your inventory costs.
13. Learn More About Your Target Customers
Stop guessing at what people want. Figure out who you’re selling to and what they’re interested in. Notice patterns for when they shop the most.
Are they deal hunters? Do they like to compare apples to apples with a product grid? Are your most popular products personalized gift items?
The answers give you important clues for seasonal demand. Customer satisfaction should always guide inventory management decisions.
14. Give Yourself a Buffer
Never allow A- or B-class stock to reach zero before reordering. Account for shipping times and delays to avoid disappointing your customers.
Hands-on store owners can use Shopify Flow. This app lets you create triggers for specific actions, like low-stock alerts. With reorder rules, you can automate the process and limit your stress.
There are also Shopify apps for the less DIY-inclined. For example, preorder apps automatically notify customers when out-of-stock items are back.
Inventory Management Best Practices for Dropshipping on Shopify
It’s a myth that dropshipping doesn’t require managing inventory. You still want to ensure your customers are satisfied every time. This means a little micro-managing of your third-party suppliers:
- Only partner with trustworthy suppliers that have a reputation for delivering orders on time.
- Use apps to sync supplier inventory with your store in real time so you never sell out-of-stock items.
- Build a good relationship with your suppliers, so they give your customers a better experience.
- Verify product quality, order accuracy, and fulfillment periodically by ordering a few items yourself.
It’s especially important to know a dropshipping supplier’s policy on returns ahead of time. Arguing about refunds leads to a poor customer experience. Align your policies to match the supplier’s, or choose returnless refunds.
Sizing Solutions for Shopify Inventory Management
Across product categories, sizing and fit are responsible for the majority of returns. With more accurate size charts on your product pages, you can reduce return rates, lower Shopify inventory management costs, and make your customers happier. Kiwi Sizing provides world-class sizing features with small-business-friendly controls. Try the number one Shopify size chart solution on your store today.
