Discounting excess inventory; switching to biweekly payroll.
QMy e-commerce site sells Japanese anime products. I sometimes unload excess inventory on eBay, where the items are often purchased at a discount. Is that a bad idea?
J-List Isesaki, Japan
It depends on the products you're discounting. It's usually a bad idea to slash prices on flagship products and collectibles. That's because fanboys will pay full price to own the latest Gundam model right now, but less obsessive consumers might wait if you train them to expect a discount nine months down the road. On the other hand, if it's July and you've still got 10 crates of 2006 Yu Gi Oh calendars, by all means eBay away. Auction sites may be your last, best hope to recoup costs on products that are past their shelf life, and they also introduce new customers to your site, says Robbie Kelman Baxter, a principal at Peninsula Strategies, a consulting firm in Menlo Park, California, that specializes in marketing.
Often, though, the choice isn't as simple as pitch or ditch. Inventory management is a dance of approach and retreat performed to the rhythm of changing demand. Companies with sufficient space, for example, will hoard seasonal items like beach gear until those lazy, hazy days return. Sellers of nonseasonal products pull them off the shelves when the market floods and prices drop. For example, Steve Weber, founder of online bookstore Weber Books in Falls Church, Virginia, uses software called Seller Engine to monitor competitors' websites. When the market price of a title dips below his liking, he pulls the book offline and lets the other guys sell low. Typically their inventory is wiped out in six to 12 months, allowing Weber to bring back the title at a higher price. Businesses that can't finesse the when of sales may diversify the where, by selling excess goods through such noncompeting channels as brick-and-mortar stores in foreign countries.
Sometimes the best thing to do is to give stuff away, as some early Internet companies demonstrated. By doling out excess products as freebies with a purchase, you can clean out your warehouse and win customer affection. Or consider donating excess items to charity as a write-off. (Donations may not exceed 10 percent of your company's taxable income.) You save money and--here's the gravy--your goods may go where they do the most good.
QI'm thinking of switching from a weekly payroll schedule to a biweekly one.
What are the potential pitfalls?
Lonnie McQuirter Jr.
LJM BP Amoco, Minneapolis
Let's do this methodically, shall we? Potential pitfall one: Your state may not let you. Some states require companies to pay hourly employees weekly; others stipulate every two weeks. A quick check shows that Minnesota mandates at least one paycheck every 31 days, so that's the first bullet dodged.
Potential pitfall two: Your accounting may get messy. Companies on a weekly cycle can quickly tell if an employee topped 40 hours in seven days. Indeed, 44 percent of small businesses issue paychecks weekly, according to a recent study by PayCycle, a payroll company based in Palo Alto, California. One of the prime motivations for doing so is the relative ease of calculating overtime on a weekly basis, says Chris Davies, director of payroll consulting at Wise Consulting Associates in Hunt Valley, Maryland.
Potential pitfall three: Your costs may rise. Although you're likely to save money in the long run, the up-front costs of going biweekly can be substantial. Most payroll firms charge for changing schedules because it involves manually inputting new data on benefits, overtime, and taxes.
Potential pitfall four: Your employees may panic. In particular, those who live paycheck to paycheck are unlikely to embrace the new schedule. So you'll have to explain why you're making the change. Also, consider making that change easier for them by offering small, no-interest bridge loans (perhaps equal to a week's salary) to be paid back through automatic payroll deductions. That will add to the initial cost of the switch. But it will help you avoid potential pitfall five: Your workers may leave for a competitor that still pays weekly.
To learn more about handling excess inventory, read Inventory Management and Control by Donald Waters. For information on payroll taxes and local compliance issues, visit the American Payroll Association website.
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