If you are a small to medium e-commerce business, then inventory is either your biggest asset or your biggest headache. Too much stock, and you’re tying up valuable cash. Too little, and you risk disappointing customers and losing sales. With rising competition and tighter margins, accurate inventory management is no longer optional; it is essential.

You may be just starting out, or you might be looking to streamline your existing systems and reap the benefits. In either case, we’ve compiled seven best practices for effective inventory management in e-commerce. You can employ these even if you don’t currently have a large finance or warehouse team, so let’s get started.

1. Know Your Numbers

The cornerstone of any good inventory management is accurate, real-time data. You need to always know:

• How much stock you have
• Where it is
• What is selling fast (or not at all)

Using spreadsheets or pen-and-paper methods may work in the short term, but they quickly become unreliable as you grow. Set up systems that automatically track and sync stock across all your sales channels (this applies to Shopify, TradeMe, your hard-coded solution, everything).

Tip from us: Review your stock levels weekly or after key sales periods to stay ahead of any surprises.

2. Classify by Priority

It’s the nature of e-commerce; you’ll have some products that fly off the shelves, while others take longer to find their owners. This is why prioritising your products is vital so that you can focus your energy – and your marketing investments – on the products likely to generate the most revenue for you.

Some businesses find that the ABC classification method works well for product grouping, as below:

• A items = top sellers or high-value products (frequent reorders)
• B items = moderate movers or seasonal products
• C items = low value or slow-moving stock

Tip from us: Your priorities can and will shift according to season. Consider running a monthly sales report to reclassify your products based on their performance.

3. Sync Inventory with Financial Data

If your inventory system is separate from your accounting or payroll software, it’s a recipe for deep and pervasive inefficiency. That’s where integrated solutions (like First Software’s ERP with Xero integration) shine.

This type of software helps users daily by combining inventory, payroll, and financial data into one cloud-based platform. Immediately, you gain better control, reduce double handling, and spot issues early (i.e., before they become expensive).

For instance, when a product is sold, your system should instantly update your stock levels, create an invoice, and reflect the transaction in your accounts, all without requiring anyone else to take any action.

4. Automate Where You Can

Automation is crucial for maintaining your inventory management as you grow, especially if you’re a smaller business entering the e-commerce market. Embracing automation helps you save time, reduce errors, and free up your team to focus on what drives your business forward: growth.

There are many opportunities to automate your inventory management. Some of the best are:

• Automating low-stock alerts
• Using barcodes to speed up fulfilment
• Syncing orders across platforms (like WooCommerce and Shopify)
• Auto-generating purchase orders for popular items

A common misconception is that you need to automate everything at once. Don’t get caught in the trap. Instead, start by automating the repetitive backend tasks that drain your time, as a well-equipped piece of software can often handle these tasks efficiently.

5. Use Your Data to Forecast Demand

Guesswork has no place in modern inventory management. Use historical sales data, seasonal trends, and upcoming promotions to accurately forecast what your customers want, well before the busy season arrives. This helps you stock smarter, avoid panic restocks, and avoid piles of dead stock at the end of the gift-giving season.

Tools within a well-built enterprise resource planning software can help with these forecasts by securing vital data and plotting the potential future, so you can have a clearer picture of what to order (and when).

6. Invest in the Right Inventory Management Software

Ultimately, effective inventory management hinges on using the right tools for the job. If you’re finding that stock errors are growing and your team is increasingly stretched thin by the need to manage transactions or inventory, it is almost certainly time to move beyond basic spreadsheets or free apps.

A purpose-built inventory management solution that integrates with your existing Xero financial management software is a vital addition to your business. A solution like First Software’s n2 ERP with Xero integration allows you to benefit from:

• Real-time stock tracking
• Automated financial reconciliation
• Supplier and purchase order management
• Built-in payroll and compliance
• Up-to-date and simple inventory management

Here’s the thing: if your business is starting to outpace you, that means you’re growing. Growing businesses are the ones that thrive, so to survive the scale with your sanity intact, it’s worth investing in the right software to future-proof your daily operations and set yourself up for sustainable growth.

Lean into smart inventory management with First Software.

We are First Software, builders of the only inventory management system for eCommerce you will ever need. Our platform partners with Xero to deliver an e-commerce solution perfect for smaller organisations without an in-house accounting staff.

Is your business a good fit for the n2 ERP inventory management software? Find out today, and we’ll be in touch.