Case study · E-commerce
Freeing $3.1M of cash trapped in inventory
A $22M DTC home goods brand released $3.1M of cash from inventory in five months, added 4.2 points of gross margin and now forecasts cash at 96% accuracy.
Gross margin after SKU cuts
13-week forecast accuracy
Inventory on hand, $M
Client
DTC home goods brand · $22M revenue
Revenue
$15–50M
Engagement
5 months
The brand sold furniture and home textiles through its own site and two marketplaces, with about $22M in annual revenue and steady growth. Even so, the founder was drawing on the credit line every month and assumed demand was softening.
Demand was fine. Inventory was the issue. In January the brand held $5.8M of stock at cost, about 25 weeks of cover against a target nearer 12–16 weeks for its categories. Reorders were placed from the previous year’s volumes, so fast sellers ran out while slow products piled up in the warehouse. Roughly a third of the catalog had not sold through in two seasons.
There was no cash forecast beyond the current month, purchase orders were committed without anyone checking the bank balance, and contribution margin by SKU had never been calculated. Gross margin looked acceptable in total, which hid the products that lost money after fulfillment and returns.
Leah Okonjo led the work, with a partner reviewing each recommendation before it went to the founder.
Contribution margin by SKU. Margin after product cost, freight, fulfillment, payment fees, returns and attributed marketing for every product. About 60 SKUs had negative contribution margin.
Weeks of cover and reorder points. Each product got a cover target based on lead time and sell-through. Reorders now start from the forecast, not last year’s volumes.
A plan for slow stock. Negative-margin and slow SKUs were discontinued, bundled or sold through an off-price channel in stages, so clearance did not flood the main site with discounts.
Supplier terms. With our cash analysis in hand, the operations lead moved the two largest suppliers from deposits to net 60 terms.
A 13-week cash forecast. Built on purchase orders, marketplace payouts and payroll, and updated every Monday.
We also built a simple operating model linking ad spend, contribution and cash, so the next season’s buy plan could be tested before any orders went out.
Inventory on hand fell from $5.8M in January to $2.7M in May, releasing $3.1M of cash. The brand paid down its credit line and went into its peak buying season funded from cash rather than debt.
Cutting negative-margin products lifted gross margin by 4.2 points, even after clearance discounts. The 13-week cash forecast reached 96% accuracy on ending cash at week 13, and the founder now opens it first thing every Monday.
The brand’s controller kept the forecast and the SKU margin report after handover and runs both without us.
Figures are from a demo engagement and are illustrative. Past results do not predict future outcomes.
Jonah R.
Founder, DTC home goods brand
Client, people and figures are fictional demo content. Past results do not predict future outcomes. Disclaimer
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