Many owners say the same thing: "this product sells so well, so why is there no cash?" The answer is often on the shelf and in the warehouse. Money paid to the supplier has not come back because stock has piled up beyond what sells, or because the product that looks like a winner earns very little after fees.
This guide covers profit per product, sell-through, days of inventory, GMROI and holding cost, gives a decision table (reorder, reduce, clear or stop), and sets out the supplier contract terms worth negotiating before money is tied up. All figures in the examples are hypothetical.
The core answer
A best-seller does not mean healthy cash. Measure each SKU with five figures: profit per unit after channel costs, sell-through, days of inventory, GMROI and stockout days, then compare with your annual holding cost. Fast sellers with good margin and right-sized stock deserve reordering. Slow, thin-margin or near-expiry items should be ordered in smaller quantities, cleared with promotions, or dropped.
Legal framework. No law prescribes how to manage stock, but what ties up cash is usually in the contracts: minimum order quantities, return rights, consignment and expiry-date terms, all matters of the contract or purchase order. Writing off or destroying stock has accounting and tax consequences, so consult your accountant about documentation first.
Our practical view. Negotiating order and return terms before ordering is easier and cheaper than fixing the problem once goods are in the warehouse.
1. Why can a best-seller still eat cash?
| Cause | How it happens | What to do |
|---|---|---|
| MOQ above what you can sell | A better price for large orders leaves money tied up for months | Compare the discount with holding cost; negotiate split deliveries |
| Long lead time | Ordering far ahead forces large safety stock | Add a backup supplier; see backup plan when depending on one factory |
| Thin margin after fees | Commission, shipping and platform discounts eat the margin per unit | Work out margin by channel; see multi-platform reconciliation |
| Slow variants | Slow colours, sizes or models ordered in the same lot | Order variants separately; cut the range |
| Credit shorter than the sales cycle | You pay the supplier before the customer pays you | Negotiate terms, take deposits; see profitable but short of cash |
2. Per-SKU metrics to calculate
Margin per unit after channel costs
Selling price minus product cost minus channel costs (commission, payment fees, shipping you absorb, discounts). Do not use gross margin before fees: a product that shows 45 percent in the quotation can leave very little when sold through a platform.
Sell-through
Units sold in the period divided by (units sold plus closing stock). The lower it is, the more stock is sitting.
Days of inventory
Closing stock divided by average units sold per day. It shows how many days current stock will last. If it is far above the lead time plus the ordering cycle, you ordered too much.
GMROI
Annual gross margin divided by average inventory at cost. The example below uses 90-day margin times 4 and closing stock instead of average stock to keep the arithmetic simple (an approximation).
Stockout days
Days the product was out of stock while customers wanted it. Estimate lost margin as stockout days times average daily units times margin per unit.
3. Worked example with 6 SKUs
Hypothetical example, 90-day period, margin per unit already after channel fees. All figures were recomputed.
| SKU | Price | Cost | Fee | Margin/unit | Units sold | Closing stock | Stock at cost (baht) |
|---|---|---|---|---|---|---|---|
| A top seller | 450 | 250 | 25% = 112.5 | 87.5 (19.4%) | 600 | 900 | 225,000 |
| B | 890 | 420 | 12% = 106.8 | 363.2 (40.8%) | 180 | 150 | 63,000 |
| C | 320 | 150 | 15% = 48 | 122 (38.1%) | 240 | 300 | 45,000 |
| D | 1,200 | 700 | 20% = 240 | 260 (21.7%) | 40 | 360 | 252,000 |
| E | 150 | 60 | 10% = 15 | 75 (50.0%) | 900 | 180 | 10,800 |
| F | 580 | 300 | 18% = 104.4 | 175.6 (30.3%) | 30 | 500 | 150,000 |
| SKU | 90-day margin (baht) | Sell-through | Days of inventory | GMROI (annual) | Stockout days |
|---|---|---|---|---|---|
| A | 52,500 | 40% | 135 | 0.93 | 0 |
| B | 65,376 | 55% | 75 | 4.15 | 12 |
| C | 29,280 | 44% | 113 | 2.60 | 0 |
| D | 10,400 | 10% | 810 | 0.17 | 0 |
| E | 67,500 | 83% | 18 | 25.00 | 6 |
| F | 5,268 | 6% | 1,500 | 0.14 | 0 |
Total stock at cost is 745,800 baht, total 90-day margin 230,324 baht, overall GMROI about 1.24.
What the example shows:
- A sells the most units but holds 225,000 baht of stock, earns only 19.4 percent per unit, and has GMROI below 1.
- D and F together hold 402,000 baht, more than half of all stock, yet earn only 15,668 baht in 90 days.
- B and E ran out for 12 and 6 days. Lost margin is roughly 24 units times 363.2 = 8,716.8 baht for B and 60 units times 75 = 4,500 baht for E.
- E is the smallest line but earns the most per baht tied up.
4. What does holding stock cost?
| Component | Hypothetical (per year, of stock value) | Note |
|---|---|---|
| Cost of capital | 12% | Loan interest or opportunity cost |
| Storage and handling | 3% | Warehouse rent, shelving, labour |
| Damage and loss | 2% | Breakage, damp, theft, count errors |
| Expiry or obsolescence | 2% | Dated goods, trends, seasons |
| Insurance | 1% | If stock is covered |
| Total | 20% | Adjust to your actual business |
In the example, D has 252,000 baht of stock at cost, so holding cost at 20 percent a year is 50,400 baht, while annual gross margin is about 41,600 baht (10,400 times 4). Holding this product already loses money.
5. ABC and XYZ classification in brief
- ABC ranks by value. A produces most of sales or margin, B is middle, C is a long tail of many small items.
- XYZ ranks by demand variability. X is steady, Y moderately variable, Z hard to predict.
- AX items are ordered often in right-sized quantities and watched closely. CZ items should not be stocked: order on demand or drop them.
- Classify by margin after fees and by money tied up, not by sales alone.
6. Decision table: reorder, reduce, clear or stop
| Metric pattern | Decision | Example above |
|---|---|---|
| High sell-through, days of inventory below lead time, high GMROI, frequent stockouts | Reorder and add buffer stock | B, E |
| Sells well but thin margin per unit, GMROI below 1, long days of inventory | Reorder smaller; negotiate MOQ, price or channel fees | A |
| Medium sales, acceptable GMROI, slight overstock | Keep; shorten the order cycle | C |
| Low sell-through, long-aged, but good margin per unit | Bundle or promote to clear, then stop ordering | D |
| Very low sell-through, GMROI below holding cost | Stop; clear stock as in section 7 | F |
| Dated goods where days of inventory exceed remaining shelf life | Clear now; do not reorder | Any that qualify |
The thresholds are not fixed. Set them from your own holding cost and lead times.
7. How to clear dead stock
- Return to the supplier, if the contract or purchase order allows. Check conditions, time limit and fees.
- Bundle with fast sellers so both move together.
- Sell to an outlet or lot buyer. Selling below cost may beat holding on if the holding cost is not worth it.
- Write off or destroy when goods are damaged, expired or unsaleable.
The Revenue Department sets conditions and documentation for destroying or writing off stock. This guide does not confirm the details. Consult your accountant on documentation first: item list, cost value, photos or video, approver and date of destruction.
Goods with safety problems or recalls carry separate duties; see product recall, and for expiry dates on labels see product labelling under consumer protection law.
8. The contract angle before stock gets stuck
Terms to negotiate with suppliers
- MOQ and split delivery. Negotiate smaller orders or staged delivery. A confirmed purchase order often binds you to the full quantity. For conflicting terms between quotation and purchase order see conflicting terms.
- Right to return or exchange. State the time limit, condition and fees. If it is not written, do not assume you can return.
- Expiry date. Specify minimum remaining shelf life on delivery and the right to reject goods with too short a life.
- Price and volume discounts. State whether discounts depend on cumulative or single orders.
- Consignment instead of outright purchase. It cuts tied-up cash but adds risk of lost stock and remittance of proceeds. See consigned stock missing or proceeds unpaid.
When you switch factories or end a distributor
Who owns and bears the stock left over? See switching an OEM factory: who owns the stock and terminating a distributor agreement.
9. Monthly stock review routine
- Pull sales, closing stock and unit cost for every SKU as of the same date.
- Compute margin after fees, sell-through, days of inventory and GMROI.
- Flag SKUs that meet the section 6 patterns.
- Check dated goods with little shelf life left.
- Decide and record who does what by when, and bring it to the monthly meeting; see monthly management meeting.
- Review contracts due for renewal or the next order.
10. Common mistakes
- Looking at sales only, not margin after fees and money tied up.
- Ordering to the MOQ for the discount without counting holding cost.
- Not recording stockout days, so lost sales stay invisible.
- Holding dead stock to avoid recognising a loss.
- Signing a purchase order without reading return and expiry terms.
- Destroying goods without records or without asking the accountant.
- Using an old unit cost when the latest lot was bought at a different price.
11. Checklist
- A per-SKU table with margin per unit after channel fees
- Sell-through, days of inventory and GMROI computed monthly
- Annual holding cost estimated for the business
- ABC and XYZ classification at least yearly
- Thresholds set for reorder, reduce, clear and stop
- MOQ, return rights and expiry terms checked in supplier contracts
- A clearance plan with deadlines for dead stock
- Accountant consulted on documentation before destroying or writing off
- Monthly decisions and owners recorded
Further reading
- Profitable but short of cash — when books show profit but cash runs short
- Consigned stock missing or proceeds unpaid — consignment instead of outright purchase
- Quotation and purchase order with conflicting terms — terms in ordering documents
- Backup plan when depending on one factory — reducing lead-time risk
- Multi-platform reconciliation of sales and fees — real margin by channel
- Terminating a distributor agreement: stock and customers — stock when a contract ends
A best-seller that ties up cash is a product whose margin after channel costs and holding cost has never been measured. Measure each product monthly, use the decision table, and negotiate MOQ, return and expiry terms before you order.
We help review and draft supplier purchase contracts, purchase orders, consignment agreements and return terms. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and business documents and accounting and tax.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
