Alan HainingMost product businesses obsess over their margins. But there is a number hiding in plain sight that can quadruple your profit without changing a single price.
Let me start with a question. If two businesses both have £250,000 worth of stock, the same profit margin, and the same loan to finance it, should they make roughly the same profit?
You might think yes. But the answer is absolutely not, and the difference can be staggering.
This is one of the most overlooked levers in product businesses, and once you see it, you cannot unsee it.
The maths that changes everything
Let us say you carry £250K of stock and your margin is 35%. If you sell through all of that stock once over the course of the year, your profit looks like this:
| Stock held £250K Both businesses | Margin 35% Both businesses | Turn once a year £135K Annual profit | Turn four times £540K Annual profit |
Same stock. Same loan. Same margin. Four times the profit. The only variable is velocity, how fast that stock moves through the business.
Quote:
Every day your stock sits in a warehouse, your debt is quietly eating into your profits. The product is not the problem. The pace is.
Why this matters more when you are borrowing to buy stock
Most product businesses at the seven figure mark are financing their inventory somehow. A line of credit, a revenue based loan, a credit card. It does not matter which, they all carry a cost.
When stock sits unsold, you are paying interest on money tied up in boxes on a shelf. That debt does not pause because demand is slow. It ticks away every single day.
Turning your stock four times a year, means that same £250K of borrowed money is working four times as hard. You sell it, you repay, you reinvest. The cycle compounds. The interest burden shrinks relative to the revenue it is generating.
The business that moves stock quickly is not just making more money. It is also paying far less to borrow it.
So how do you actually move stock faster?
This is where most advice gets vague. Let us keep it practical.
1. Sort your demand first. Faster inventory turns start with stronger demand. If your marketing is not consistently pulling customers in, no amount of operational tweaking will fix the underlying problem. Get your channels working before anything else.
2. Stop overbuying. Large bulk orders feel efficient but they are often the enemy of good cash flow. Order smaller, more frequently, and keep your stock lean. You want just enough product to meet demand, not a warehouse full of security blankets.
3. Cut your slow movers. Every product that sits is costing you money and masking the performance of your winners. Be ruthless about removing lines that do not shift. Fewer products, better focus, faster turns.
4. Negotiate payment terms with suppliers. If you can arrange to pay your supplier after you have sold the goods rather than before, you remove the carrying cost almost entirely on that portion of stock. This is more achievable than most founders realise, particularly once you have a track record with a supplier.
5. Price for velocity, not just margin. There is a balance between your margin percentage and how quickly a product sells. Sometimes a slightly lower price point moves three times the volume and produces a far better return overall. It is worth modelling this properly rather than assuming a higher price always means better profit.
The question to ask yourself today
How long does your stock sit before it sells? Do you actually know that number? If you do not, that is the first thing worth finding out.
Days inventory outstanding is not a complicated metric, but it is one of the most revealing numbers in your business. A high number tells you money is trapped. A falling number tells you things are working.
The businesses that scale profitably are not always the ones with the best product or the highest margins. They are often the ones who figured out how to keep stock moving and cash flowing. That discipline, more than almost anything else, is what separates a business that feels permanently stretched from one that compounds year on year.
You do not necessarily need more stock. You might just need to move what you have got, faster.
Want to work through this for your business?
Book a free consultation and we will look at your inventory turns, your carrying costs, and where the biggest opportunities are hiding in your numbers.
