PSU Insight

The Importance of "Running the Numbers"

Is Inventory Good?

Before we continue, let’s consider inventory for a moment. Just what is “inventory”? For our purposes, it’s simply the stacks or boxes of your products that you’ve printed, recorded, or burned… but you haven’t sold yet. But how you feel about inventory is more complex. (We're talking about physical products here. Digital products don't involve inventory, although they have their own set of problems.)

Let’s face it — when you produce your first product, inventory is a source of considerable pride. “Look at my book (or CD or DVD or whatever)!” you exclaim. “I’ve got a garage full of them! I’m so happy!”

Yes indeed. At the beginning, having a garage full of inventory is a good thing. But within a few months, you begin to view your inventory in a different light. Having a garage full of inventory is no longer a source of pride — it’s a source of despair and frustration.

It comes down to one thing. Your inventory represents money — both real money (that you no longer have because you spent it acquiring your inventory), and future money (that you might eventually receive when you sell your inventory). Unfortunately, you can’t use “future” money to buy groceries or pay the rent now. Either way you consider your inventory — as money already spent, or as money not yet received — inventory is a poor substitute for cash-on-hand.

But there’s another problem. Like a carton of milk, your inventory has an expiration date associated with it. (And just like a carton of milk, expired inventory smells pretty bad.) I’m not kidding. Your inventory can physically age — and as it ages, the plastic cracks, the paper yellows, and the colors fade. Or your beloved content may turn from cutting-edge to obsolete. Or, worst of all, your customers may simply tire of seeing the same product for sale, year after year.

So reducing your inventory should be a high priority for you, right along with making a profit. And, getting back to our earlier topic, here’s something else to consider —

By offering “twofers”, you’re reducing your inventory twice as fast as by selling single items (whether they’re on sale or not).

So even if you make the same money (or maybe even make less money) by selling “twofers” than by single sales, it still might be a worthwhile thing for you to do… for the inventory reduction that you achieve!

Of course, all this applies to physical products, like books, DVDs, and coffee mugs. Many physical products also have their "virtual" equivalent nowadays — e-books, downloadable files, and so on. (I'm not aware of a virtual equivalent of coffee mugs... yet.) Virtual products don't have an inventory aspect, but they have other characteristics which we'll consider later. For now, simply note that the inventory problems described here only apply to physical products.