How to Find the Profit That's Already in Your Inventory | #636

Most businesses struggling with profitability aren't spending too much on ads. They're holding too much stock. The wrong stock. Stock bought on gut feel six months ago, sitting in a warehouse, tying up cash that could be doing something useful.

Talea Bader is the co-founder of SKUTOPIA, an Australian fulfilment operation that's been building its own AI and robotics platform for eight years. He runs fulfilment for hundreds of businesses, from early-stage brands all the way through to enterprise, which gives him a view of what's actually happening inside these businesses rather than the version operators tell themselves.

He's seen a business turning over $700 million move from significant losses to tens of millions in profit. Not by changing their marketing. Not by redesigning their website. By changing the way they managed inventory.

Today, we're discussing:

• Why inventory is your biggest P&L lever, and most businesses go looking for profit in the wrong place
• The difference between gross margin and delivered margin, and why most buying decisions are made off the wrong number
• Why inventory reordering is still super manual, spreadsheet based, and driven by ego instead of science
• How to know your weeks on hand before it becomes a crisis
• The $700 million business that moved from significant losses to tens of millions in profit through better inventory management alone

Connect with Talea Bader | Explore SKUTOPIA

Transcript

Scaling E Commerce With The Right Partner

SPEAKER_01 0:00

When your brand is riding a wave that just keeps growing, you need more than just the right platform, you need the right partner. Gander Clothing was scaling rapidly, but their e-commerce tech just couldn't keep up. That's when they partnered with Convert Digital. Since launching a Headless Shopify Plus site in 2021, they've seen incredible results. A 300% increase in daily orders, 16% revenue growth, and a 12% conversion boost. With faster load times, a seamless checkout experience, and powerful omnichannel integration. Gander is transformed into one of Australia's biggest retail success stories. And it's all powered by Convert Digital's commerce expertise. It's commerce that stacks up. Read the full case study at convertdigital.com.au.

The Hidden Profit Lever Inventory

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When a business needs to grow profit, the first conversation is almost always about marketing. More spend, better creative, higher conversion. Sometimes the conversation is about conversion. Fix the site, improve the funnel, recover the abandoned cards. Both conversion and marketing are definitely worth working on. However, the biggest lever is almost always inventory. Most businesses struggling with profitability aren't spending too much on ads. They're holding too much stock, the wrong stock. Stock that is bought on gut feel six months ago that's sitting in a warehouse tying up cash that could be doing something useful. Talia Beta is the co-founder of Scootopia, an Australian fulfillment operation that's been building its own AI and robotics platform for eight years. They run fulfillment for hundreds of businesses, from early stage brands all the way through to enterprise. That vantage point gives him a view of what's actually happening inside those businesses. This is what the data shows. He's seen a business turning over $700 million move from significant losses to tens of millions of dollars in profit, not by changing their marketing, not by redesigning their website, by changing the way they manage their inventory. And the fix wasn't complicated. They started making decisions with data instead of gut feel and holding weeks of stock instead of months. Let's hear it directly from Talia.

Why Reordering Is Still Manual

SPEAKER_01 2:23

From the conversations you're having, where are you seeing people go wrong with inventory management?

SPEAKER_00 2:28

I think basically people don't understand the impact of inventory and their PL. And they don't understand that this is one of the most important things where you can actually make a change business from being loss-making to a profitable business. So we're in discussions with a $700 million business that moved from a massive loss-making business to making substantial, I can't say numbers obviously, but many millions, tens of millions in profit purely through better inventory management and moving into having weeks on hand in inventory rather than months. So we basically, through our experience working with many different retailers, both B2B, B2C, omni-channel retailers, and so on, we figured out what is the golden standard of inventory management. And now we systemized that and we're basically about to offer that to everyone to have this as the guideline. So basically, don't order too much inventory. If you have already 10 weeks of inventory of a specific item, you shouldn't be ordering more. Or what is the specific level of inventory for your industry, for your category that you need to be holding in your warehouses? And how do you distribute that? And where does this inventory sit in a long-term storage into a big face? How do we make sure that you're not paying too much storage for this inventory as well and so on?

SPEAKER_01 3:42

Aaron Powell And you're finding that inventory reordering process. Are many brands doing it in an automated way or is it still very manual?

SPEAKER_00 3:50

Super manual. Spreadsheet-based and driven by buyers and driven by ego and never by science. So that's basically what we're about to release to change this. Aaron Powell And would that be automated? 100% automated. Well, the uh a buyer still need to be to do the uh the buying, but you can't ignore it anymore. If I'm telling you you have X number of dollars dead cash and this is the number, and everyone we don't democratizing access to the data as well. If the founders or the managers of uh this business want democratized access to the data, we can give access to data at a user level. If it's an administrator of finance or whatever that is, across our business, for example, we release this product for our team internally and for our business, and we have full democracy on the data. Anyone can view anything at any time.

Three Moves To Maximise Profit

SPEAKER_01 4:38

What Talia is describing here isn't necessarily a fulfillment story. It's a profit story, and the decisions that shape it get made every time someone places a stock order. Here are three things worth acting on to help maximize profit by managing your inventory better. Number one, inventory is your biggest Panel lever. Most businesses go looking for profit in the wrong place. When profit is under pressure, the instinct is to go upstream. Better marketing, higher conversion, new channels. The data almost always points back somewhere else into the warehouse. Every dollar of stock sitting unsold is cash that can't be reinvested. The holding cost compounds storage, working capital locked up, markdown pressure building the longer that it sits. And the damage is often invisible from the top line. Revenue can look fine while the inventory quietly drains the business. The clearest example of this in the Add to Card archive comes from Carla Pencan at Profit Peak. Their own business, before they started Profit Peak, they had their own business and they had a brand that they considered a bread and butter performer. Gross margin looked really strong. They'd been consistently putting marketing investment into it. But when they looked at delivered margin, what was left over after factoring in advertising spend and fulfillment costs, they discovered that they were barely making money on it. So they stopped investing. When they stopped investing, the profitability picture shifted almost immediately. The distinction worth understanding is gross margin versus delivered margin. Gross margin always flatters. Delivered margin usually reveals. Most buying decisions in most businesses are made off gross margin. But the number that actually tells you whether a product is worth backing is what's left after you've paid to get it here, to market it, and to get it to the customer's door. If you don't know your delivered margin by product, you don't know which products are worth buying more of. That's the number one step to getting it right. Number two, the buying decision is the most important financial decision in a product business. Almost nobody makes these decisions with good data, which is a bit crazy. Super manual, spreadsheet based, driven by buyers and driven by ego and never by science. That's how Talia describes how most businesses manage inventory reordering. It's not a startup problem necessarily. Walk into most mid-market operations and the process kind of looks the same. The planning method that actually works isn't complicated. Baseline sales with promotional uplifts layered on, factoring in lead times, that's the core of it. At Sheet Society, the team built the business to significant scale before hiring their first merchandise planner. Haley Worley said that looking back, they probably should have done it years earlier. The business ran on instinct for longer than it should have. At motto, the approach came from the other direction. Rather than trying to forecast perfectly, Lauren French accepted higher freight costs as deliberate insurance. Air freight rather than bulk sea freight means not being locked into large volume commitments months in advance. Her framing was very direct. It was a lot cheaper to air freight than to be overstocked with cash tied up and then having to mark down. Very different methods, same principle. The cost of getting the buying decision wrong is higher than the cost of the operational fix. Whether you hire a planner, build a proper forecasting model, or just adjust your supply chain to reduce commitment risk, the starting point is the same. Except the gut feel and last year's spreadsheets are probably not enough anymore. And number three, know your weeks on hand before it becomes a crisis. The number that tells you whether your inventory is healthy is weeks on hand by SKU. Most operators either don't track it or only look at it when something has already gone wrong. By that point, options are a bit limited. Idle stock accumulates costs faster than most operators realize. Smart in planning's Susan Martin frames it really simply. Idle stock is like fruit. If you're not moving it through quickly, it rots. Storage fees, working capital tied up, and the growing pressure to discount to clear it. Pure play operators are often slowest to mark down, partly out of brand concern, partly because clearing stock feels like admitting a mistake. But dead stock is stopping you from buying fresh, better performing stock. And that is the real problem. The markdown is the fix, not the failure. At Proud Poppy, the business hit one to two weeks of stock cover. When you're at that level, every decision becomes reactive. You're not managing the inventory, you are responding to it. The time to know this number is well before that moment. Build the habit now. Know your weeks on hand by SKU. Know what a healthy level looks like for your category and your lead times. Set the trigger if you're holding more than X weeks on a SKU, that's a conversation worth having before the next order goes in. Review it proactively, not when you're forced to. Talia's $700 million example is extreme in scale, but the principle isn't. Weeks of stock instead of months, buying decisions based on data instead of a spreadsheet and a hunch. Most operations have a version of that same opportunity sitting in the warehouse right now. The question is whether the team can see it

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