What is Overselling and How to Prevent It (2022)

There are three words no retailer wants to hear: out of stock.

But when you’re selling through marketplaces, an ecommerce website, and a retail store, it feels impossible to keep accurate inventory counts and avoid overselling.

Data shows as well that retailers aren’t doing a great job managing their inventory. Roughly 8% of small businesses don’t track their inventory, and another 14% do it manually, using pen and paper. No wonder stockouts are a $1 trillion dollar problem for retailers.

The answer? An inventory management system that connects all your sales channels and inventory, so customers can shop however, whenever they want.

This guide explains how you can reduce the risk of overselling, spend less time reconciling inventory, and keep stock levels high in your warehouse.

What is overselling?

In retail, overselling means selling more items than you actually have on hand. It is possible for your website or store to display a product as available when it isn't, forcing you to cancel the order after it’s submitted.

Impact of overselling

Lost revenue
Damage to brand reputation
Strengthen competitors
Negatively impact customer loyalty

Overselling can negatively impact your business in multiple ways.

Lost revenue

The biggest consequence of overselling investory is lost revenue. Stockouts cost retailers an estimated $1 trillion each year. If customers cannot receive a product because it’s out of stock, you lose any profit on the sale. You may also lose any future revenue from that customer.

Stockouts cost retailers an estimated $1 trillion each year.

Damage to brand reputation

Retailers know how important their brand’s reputation is. Stores with a positive reputation attract better customers, are perceived to have more value, and have higher customer loyalty rates. Overselling inventory can damage your brand’s reputation.

Studies show that 30% of consumers feel stockouts hurt their shopping experience. Customers are forgiving to an extent. Roughly three-quarters (69%) of consumers will choose another item after the first out-of-stock, but after experiencing three of them, 70% of people will go to another brand.

💡 PRO TIP: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and warehouse. Forecast demand, set low-stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.

Strengthen competitors

Out-of-stock notices and canceled orders are discouraging for consumers, especially if they are taking advantage of a sale or deal. If a customer doesn’t get what they want, they will go find it from a competitor. Studies show that 37% of shoppers who experience just one stockout will go shop with another brand, and 9% will buy nothing.

The most common consumer reaction to stockouts is buying from a different brand.

Negatively impact customer loyalty

Customer loyalty increases revenue and encourages word-of-mouth marketing. When a customer relies on you to have products available, and they run into an empty shelf, you can lose them. If customers leave your store empty-handed multiple times, it could lead to negative feedback and reviews online, as well as future revenue loss.

Big brands spend a lot of money to be the default choice of the customer and know they do not want to break the traffic pattern of a loyal customer. When you are the default choice of the customer they trust in you and are not concerned with other alternatives. However, when you leave them no choice, they will compare.

Waqas Ahmed, Marketer, Shopify

Causes of overselling

Let's examine some of the various causes of overselling.

Inaccurate inventory data

Inventory record inaccuracy (IRI) refers to the difference between the recorded amount of inventory and amount of physical inventory. In retail, IRI can lead to a revenue loss of more than 1% of sales and more than 3% gross profit.

A lack of real-time inventory updates can lead to overselling. Perhaps it's because retailers use manual inventory management methods, tracking and controlling inventory without software.

Manual inventory counts are prone to human error, especially when dealing with large inventories across multiple channels, resulting in discrepancies between recorded and actual stock.

Disconnected online and offline inventory

When you start your business, you may only have one sales channel and one warehouse. The number of digital and physical channels through which you sell grows as your business grows. So does the number of warehouses you work with.

Retailers must maintain accurate inventory both online and offline in the age of multichannel selling. Multiple warehouses processing orders will prove difficult to manage without an order management software that connects online and offline inventories.

Shopify POS ensures we don’t sell products online when we’re out of stock. It makes it much easier to keep track of our inventory everywhere we sell.

Gianluca Munzi, Co-Founder, Il Conte

💡 PRO TIP: When you use different platforms to run your online and retail stores, inventory discrepancies are more likely to happen. This can lead to more frequent inventory counts to reconcile differences and ensure stock levels are accurate.

Logistics issues

Sometimes you may oversell products because of a fault in your logistics. Supply chain issues like global shortages, shipping congestion, or last mile delivery delays could cause a gap in your inventory data that results in overselling.

How to prevent overselling

Inventory management software
Improved forecasting
Hire an inventory management specialist
Unify inventory across all marketplaces
Organize your stockroom
Set reorder points
Implement ABC analysis
Regular inventory audits

Fortunately, there are a number of steps you can take to prevent overselling at your retail store.

Inventory management software

Inventory management software exists to make your life easier and keep inventory on track. A lot of small businesses start off using the pen-and-paper method of inventory management, which can quickly lead to oversold items and unhappy customers.

With inventory management software, you can:

Track stock
Set stock alerts
Automate purchase orders
Get access to inventory reports
Sync stock data in real-time

Inventory software gives you full insight into how inventory moves throughout your supply chain. It gives you a single, reliable view of your inventory, so you can keep enough items in stock.

There are a variety of inventory management apps in the Shopify App Store. Two popular options are:

Improved forecasting

Demand forecast gives an estimate of how much product you’ll sell. It’s notoriously difficult for retailers, because no one can predict the future. There is no crystal ball for inventory management. There are, however, demand forecasting methods you can use to understand:

How much inventory of each product you should have
How often to restock specific products
How much staff is needed on the shop floor

Forecasting is important because it combines historical sales data and market trends to calculate demand. You can prepare your supply chain and inventory for seasonal changes and avoid overselling (or underselling) stock.

Shopify POS lets merchants know which products to restock based on their profitability and sales rate, and notifies them when inventory counts reach a certain level, so they can restock before they run out.

Learn more: How to Forecast Demand for Your Retail Store (and Why You Should)

Hire an inventory management specialist

If you want to avoid overselling, hire someone who knows how to manage inventory. An inventory management specialist is an excellent addition to your retail management team. They help you keep sufficient inventory to meet customer demand, while lowering costs.

An inventory management specialist will also:

Unload items from deliveries and sort them in your warehouse.
Pack and prepare outgoing shipments.
Count inventory to determine low or excess stock.
Analyze changes in inventory counts.
Replenish stock and order new products.
Complete regular inventory reports to avoid outages and losses.

Aim to hire someone with experience controlling inventory in a retail setting. Make sure they have proven their ability to increase profit margins and maintain inventory procedures. An inventory management specialist can be the missing link to keeping items in stock, so you can focus on other areas of your retail business.

💡 PRO TIP: Want to control which staff can count, receive, and adjust inventory quantities? Set roles and permissions to set boundaries on what staff can and can’t do when logged in to your POS system, like accessing its inventory management tools.

Unify inventory across all marketplaces

Another way to prevent overselling is to unify your inventory through a POS system. Using Shopify POS, you can sync all your sales channels—from ecommerce to warehouse to retail store—and consolidate backend operations, so you never skip a beat with your inventory.

Combing your ecommerce store with your brick-and-mortar POS also offers:

Full visibility into whether or not products are in stock.
The ability to order and move inventory based on demand.
The ability to maintain accurate and consistent prices throughout all channels.

We can sell with confidence knowing the inventory availability we show customers online is accurate, and the inventory levels our staff see in the POS system are as well.

Felix Ilett, Head of Sales, Mister Zimi

Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Shopify automatically syncs stock quantities as you receive, sell, return, or exchange products online or in store—no manual reconciling necessary.

Organize your stockroom

It’s easy for your stockroom to get disorganized. It’s the one place customers never see in your store. But a disorganized stockroom can lead to inaccurate inventory counts and overselling inventory.

Keeping your stockroom organized lets you know exactly what physical product you have in stock. That way, you avoid overselling and can easily fulfill shopper requests.

Consider your busiest working day. We have a big inventory, and one lost product can take a long time to search for. Having a system in your stockroom that everyone understands can help avoid any last-minute panic and help you save valuable time.

Alice Ojeda, founder of Authentic House

Each stockroom is different. You’ll want to choose the right stockroom layout for your store and set guidelines to make it usable for new and existing employees. There is a bit of time and planning that goes into organizing a stockroom. To do it efficiently, read Get Organized: How to Arrange Your Retail Stockroom to Find Inventory Fast.

Set reorder points

Reorder points (ROPs) signal you when it’s time to reorder inventory. They help you restock before overselling completely. Reorder points are expressed as a quantity, like 25 t-shirts. When your inventory drops below that level, you can automatically reorder more through your inventory management software.

Inventory shortages are costly when customers come looking for a specific product that you don't have because you didn't order enough. Reorder points help maintain sufficient inventory levels, plus:

Lower inventory costs
Avoid stockouts
Improve efficiency

You can change reorder points over time, depending on sales velocity and changes in lead time. By reordering before you run out of inventory, you ensure there’s enough product to sell and happy customers to serve.

Implement ABC analysis

ABC analysis is an inventory management technique used to identify your best and worst performing content. It’s a smart way to take control of inventory and improve profitability by knowing which products make you the most money. It’s based on the Pareto principle, also known as the 80/20 rule.

ABC classification breaks inventory down into three categories based on revenue:

A grade. Your best-performing inventory, which should account for 80% of sales. You want to prioritize this inventory and make sure it’s never oversold.
B grade. Your mid-tier inventory, which accounts for 15% of sales.
C grade. Your worst-performing inventory, which should account for 5% of sales. This could be slow-moving or dead stock, and shouldn’t be heavily prioritized by your business.

Using ABC analysis helps you understanding where to make investments in your inventory. For example, you can keep in-demand, A grade inventory in stock and spend less on dead stock. Shopify merchants can easily conduct an ABC analysis

Separating your inventory into these three categories will give you a good indication of what items you need to stock more of, and which items you need to reduce.

James Khoury, CEO at Zendbox

💡 PRO TIP: Want to know which products account for the majority of profits? View the ABC inventory analysis report in Shopify admin to see your best and worst-performing inventory, optimize your purchasing, and increase profitability.

Regular inventory audits

An inventory audit checks your business’s inventory levels against its financial records. It ensures that your physical inventory matches what’s recorded in your inventory management software. An audit gives you peace of mind that your inventory is accurate, you have enough safety stock, and you can plan for future customer demand.

Learn more: A Simple Guide to Inventory Audits for Retailers

Avoid overselling inventory at your store

Keeping inventory in stock and preventing overselling isn't as difficult as it seems. With inventory management software, you can ensure that sufficient inventory levels are maintained and customers are able to find what they desire quickly and easily.

Ensure your inventory system is ready to prevent stockouts by following these tips. With the right tools, your store will be well on its way to strengthening its competitive edge and improving its bottom line.

Overselling FAQ

What is overselling in business?

Overselling in business refers to a company’s practice of knowingly selling more of a product or service than they can deliver. This can be done in order to increase profits or to meet customer demand, but it can also lead to customer dissatisfaction if the product or service cannot be delivered as promised.

What is overselling in supply chain?

Overselling in supply chain management is the practice of taking orders for products or services that cannot be fulfilled due to inventory or capacity constraints. It is typically done to boost sales and revenue, but can have serious repercussions if customers are unable to receive the products they ordered. In some cases, it can lead to a loss of customer loyalty, negative reviews, and increased costs associated with managing inventory and customer service.

What is Overselling and Tips on How to Prevent It

Country/region