The Hidden Cost of "We'll Sell It Eventually"
You have 500 units of a product that hasn't sold in 6 months. COGS was $25/unit. That's $12,500 tied up.
But the real cost is higher:
- Warehouse space: $0.50/unit/month × 6 months = $1,500
- Opportunity cost: $12,500 invested at 10% annual return = $625 lost
- Risk of obsolescence: Fashion/tech loses 20% value every quarter = $2,500 potential loss
- Total hidden cost: $4,625 (37% of COGS)
After 12 months, you'll spend more on carrying costs than you spent on the product.
Dead stock isn't just unsold inventory. It's cash bleeding out slowly.
Let's stop the bleeding.
What Qualifies as Dead Stock?
Not all slow-movers are dead. There's a spectrum:
The Dead Stock Hierarchy
1. Clinically Dead (Liquidate Immediately)
- Zero sales in 180+ days
- Inventory turnover < 0.5x per year
- Seasonal product past its season
- Discontinued, damaged, or expired
2. Critical Condition (Liquidate Within 30 Days)
- <5 sales in 180 days
- Inventory turnover < 1x per year
- Sitting for 12+ months
- Next season's version arriving soon
3. Slow but Salvageable (Monitor / Light Discounting)
- Inventory turnover 1-2x per year
- Steady trickle of sales
- Not time-sensitive
- May improve with marketing
4. Healthy Stock (Keep)
- Inventory turnover 4-8x per year
- Consistent sales velocity
- Reordering regularly
The Inventory Turnover Formula
Inventory Turnover = Cost of Goods Sold / Average Inventory Value
Or simplified per SKU:
Inventory Turnover = Units Sold (12 mo) / Average Units in Stock
Example:
- Units Sold Last Year: 120
- Average Inventory: 100 units
- Turnover: 120 / 100 = 1.2x per year
Anything under 2x is a problem. Under 1x is dead.
Finding and Analyzing Dead Stock in Excel
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3
Export Your Full Inventory List
From Shopify: Products > Export. Get SKU, Product Name, Current Stock, Cost per Item, Date Added. This is your starting point.
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3
Calculate Inventory Turnover Ratio
In your inventory sheet, add column: =UnitsSoldLastYear / AverageInventory. Sort descending. Products at the bottom (<2.0) are your problem children.
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3
Calculate Days of Supply
Days of Supply = (Current Stock / Daily Sales Rate). Formula: =CurrentStock / (UnitsSold365 / 365). Over 180 days = dead stock. Over 365 days = ancient history.
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Calculate True Carrying Cost
Carrying Cost per Unit per Month = (Storage Rate × Volume) + (COGS × Monthly Interest Rate) + Obsolescence Risk. Typical total: 2-3% of COGS per month.
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3
Calculate Break-Even Liquidation Price
Break-Even = COGS + (Accumulated Carrying Costs). Any sale above this recovers your money. Formula: =COGS + (MonthsInStock × MonthlyCost). Anything less is a loss but stops further bleeding.
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3
Build Your Liquidation Priority Matrix
Create score: (Units in Stock × COGS × Months Sitting). Sort descending. Highest scores are bleeding the most cash. These get liquidated first.
The Liquidation Strategy Decision Tree
Not all dead stock should be liquidated the same way. Choose based on value and velocity:
Strategy 1: Deep Discount (50-70% Off)
When to use: High volume, low COGS, need it gone NOW
- Example: 1,000 units of $5 keychains
- Liquidation price: $2-3
- Goal: Clear space, recover something
- Channel: Your own site with banner ads
Strategy 2: Bundling
When to use: Dead stock + bestseller = perceived value
- Example: Slow-selling phone case + popular charging cable
- Bundle price: $29 (separate: $40)
- Goal: Move dead stock while maintaining margin on bestseller
- Channel: Homepage bundle offer
Strategy 3: Liquidation Partners
When to use: Premium brand can't be discounted heavily on your site
- Example: Designer apparel ($150 COGS)
- Liquidation price: $80-100
- Goal: Preserve brand, quick cash
- Channels: TJ Maxx, Gilt, Rue La La
Strategy 4: Donation Write-Off
When to use: Can't sell above break-even, need tax deduction
- Must be legitimate charity (not "mystery box" resellers)
- Get written receipt for tax filing
- Deduct Fair Market Value or COGS (IRS rules vary)
Strategy 5: Return to Supplier (if possible)
When to use: You have return agreements, product is sellable
- Expect 25-50% restocking fee
- Still better than $0
- Negotiate terms before placing large future orders
The Excel Dead Stock Calculator
Build a simple tracker to prevent future dead stock:
Column Structure:
1. SKU
2. Product Name
3. Date First Stocked
4. Current Units
5. COGS per Unit
6. Total Value (Units × COGS)
7. Units Sold L90D (last 90 days)
8. Daily Sales Rate (=Col7/90)
9. Days of Supply (=Col4/Col8)
10. Inventory Turnover
11. Status (formula-driven)
12. Action Required
Auto-Status Formula:
```excel
=IF(J2<0.5,"Dead-Liquidate Now",
IF(J2<1,"Critical-Liquidate 30D",
IF(J2<2,"Slow-Monitor",
"Healthy")))
```
Conditional Formatting:
- Red: Dead (turnover <0.5)
- Orange: Critical (0.5-1.0)
- Yellow: Slow (1.0-2.0)
- Green: Healthy (>2.0)
Update this monthly. Watch for products slipping from green to yellow.
Get automated dead stock alerts before inventory becomes a problem. Identify slow-movers early and take action.
Monitor Inventory HealthPrevent dead stock before it happens
Common Mistakes to Avoid
Learn from these common pitfalls to ensure success
Waiting until inventory is truly dead (0 sales in 12 months) to take action
Solution: Act when turnover drops below 2x. Early 30% discount is better than desperate 70% discount later.
Not tracking accumulated carrying costs in liquidation decisions
Solution: A $50 COGS product that's sat 12 months has cost you $60-65 total. Liquidate at $40 to stop the bleeding.
Buying more inventory before clearing dead stock
Solution: Institute a rule: no new POs until dead stock is under 10% of total inventory value.
Liquidating everything at once and training customers to wait for sales
Solution: Rotate liquidations by category. Don't make your entire catalog 50% off simultaneously.
Not learning from dead stock patterns
Solution: After liquidation, analyze why it became dead stock. Over-buying? Wrong trend? Poor product-market fit? Adjust buying strategy.
How to Verify Your Numbers
Ensure accuracy with these verification steps
You have a list of all SKUs with <2x annual inventory turnover
You know the total dollar value tied up in dead stock
You've calculated break-even liquidation price for each dead SKU
You have a liquidation plan with specific dates and discount levels
You're tracking the success rate of your liquidation strategy
Frequently Asked Questions
What's a healthy inventory turnover rate for e-commerce?
Should I liquidate profitably-selling products with slow turnover?
How much dead stock is normal?
Can I prevent dead stock entirely?
Should I advertise liquidation sales or hide them?
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