Growing Your Ecommerce Business with an Inventory Manager
Somewhere on your road to $1M in revenue, your eCommerce business’s financial workflow will start to break down. Manual processes and bad data will start to obscure what your true financial position actually is. Common issues are issues with your inventory balance on the Balance Sheet, your Cost of Goods and Gross Margin on the Income Statement, Sales Tax filings, reconciling the fees taken out of your Amazon settlements, just to name a few. When you get that feeling, it’s probably time to consider implementing an inventory management solution like DEAR Inventory (our preferred solution) and A2X (a must).
You may expect that once you implement that solution, your problems will be solved, right? Unfortunately, it’s not that simple. Systems are only as good as the personnel that operate in them.
The common scenario we continue to see is that an eCommerce will spend their first salary dollars on a warehouse manager. This is critical to get your product to customers fast. An important role for sure.
As the business hits its next inflection point - implementing software systems and procedures - leadership will usually rely on the warehouse manager to step up and lead the initiative with the new systems. This is usually a mistake as a warehouse manager is not the same as what you now need, an inventory manager.
The Distinction Between Warehouse and Inventory Managers
Although a warehouse and inventory manager do have some overlapping tasks, the primary goal of each of these positions greatly differs. Both of these positions are important to the long-term success and scalability of your eCommerce business.
A warehouse manager focuses on the movement of goods throughout the business by creating orders and ensuring the team is working efficiently. This job position tracks receiving and shipping of goods to the final destination.
On the other hand, an inventory manager directs their attention to the actual product, managing order quantities, re-order dates, purchase prices, vendor relationships, and tracking costs in the accounting system and COGS.
One of the main differentiating factors between these two positions is the understanding of backend accounting. You can’t expect your warehouse manager to know everything about recording inventory if they have no formal training on recording costs.
For example, your warehouse manager might be great at getting orders out on time, but how informed are they about what does and does not go into a product’s unit cost? What impact does their work in the inventory management system have on the financial statements?
The same goes for inventory managers. They might have a good working knowledge of how to properly record unit costs into the accounting system, negotiate with vendors, monitor SKU level product performance, but what about when it comes to managing a team on the warehouse floor? Employees in these positions add value to your company in different ways.
The Impact of Unit Costing on the Financials
One of the primary growing pains eCommerce business owners have is getting an accurate cost of goods sold number they can trust. Incorrect usage of the inventory management system will generate incorrect results in the financial statements. The unit cost that gets recorded in your inventory ledger should include all costs associated with the product purchase including shipping, taxes, and the product cost. Proper eCommerce accounting relies on including all relevant product costs.
Underestimating unit costs leads to overstating financial income, resulting in a higher tax liability. Overestimating unit costs leads to understated financial and taxable income, meaning you are paying less than you should be. The IRS and regulatory agencies don’t take misreporting income lightly, regardless of if you are overpaying or underpaying.
Matching principles outlined by Generally Accepted Accounting Principles are also impacted. This principle requires revenue and expenses to be reported in the same period that they were incurred. When costs aren’t properly recorded, you might have a large expense in one period that truly relates to something six months ago. Following the matching principle at year-end is especially important for accurate financial reporting.
In addition, management decisions are often based on unit cost. Should your business keep or discontinue a product segment? That decision often falls on the margins that your accounting system is telling you. Without the proper unit costs, you could make the wrong decision.
Finding the Right Talent
If your eCommerce business is coming up on over $1 million in sales, it might be time to consider hiring an inventory manager or expect to provide significant training to your warehouse manager, which they may or may not be capable of successfully executing or be able to tackle both roles at the same time. Don’t take this training lightly.
With employee demands at an all time high, you might need to reconsider the benefits of working at your company. Are you offering retirement plans? How about health insurance benefits? The market is very competitive and you want to find qualified talent to fill your management positions.
Keep in mind that the base pay will differ based on which region you are located in. A warehouse manager salary will most likely be based on your physical location whereas an inventory manager can sometimes work remotely. Remote salaries can vary, but it does give you added flexibility when it comes to fronting the cost of another employee. Ziprecruiter outlines that the average salary for an inventory manager is around $50,000 per year while a warehouse manager also remains in that ballpark. Although this might seem like a stiff cost to add, your business can see significant benefits of proper unit cost recording and alleviate some of the burdens on your existing staff.
When it comes to listing a job position on Indeed or other employment site, you want to be sure you are giving transparency throughout the job description. If you are looking for an inventory manager, state the general duties the candidate can expect, such as recording inventory in the accounting system and tracking unit costs. Indeed provides great templates for creating your inventory manager and warehouse manager job descriptions.
Accurate Financials Without Added Employees
For many eCommerce businesses that are still struggling to turn a profit, adding another position isn’t always in the cards. If you don’t have the funds or time to hire an inventory manager, expect significant training to help employees differentiate between these two roles. Training may include going through determining what unit cost is, how to properly record unit costs, and matching inventory with related expenses to promote the matching principle outlined by GAAP.
Another way to promote accurate financials without adding employees is to work with an outside accountant. An outside accountant retains the knowledge to make adjustments to your accounting system and promote accurate financial statements. Finally, investing in a quality inventory management system, like DEAR Inventory, can alleviate a portion of the burden on your warehouse manager.
Summary
Both the inventory and warehouse management functions are vital to your growing eCommerce business. Odds are you already have a warehouse manager that is doubling as an inventory manager. Differentiating these positions might lead to higher payroll costs, but the long-term benefits can outweigh these costs.
