Optimized Inventory Order Levels: How Small E-Commerce Businesses Can Prepare for Peak Sales Seasons.

If you are a small business owner in Canada selling physical products whether in a storefront or through an e commerce shop knowing how much inventory to order before your busy season is critical.

Busy seasons can make or break an e-commerce business. Black Friday, Cyber Monday, holiday shopping, seasonal launches, or viral demand spikes all have one thing in common: inventory pressure. Too little stock means lost sales and frustrated customers. Too much stock ties up cash and erodes margins. That is why understanding your reorder point is one of the most important inventory strategies for new and growing businesses.

This guide explains what optimized inventory levels are, why they matter, and practical steps e-commerce business owners can take to prepare for high-volume periods without overextending cash flow.

If you are unsure how much inventory to order or feel unclear about your numbers professional bookkeeping support can make the process easier and more predictable.

What is Reorder Point?

A reorder point is the inventory level at which you should place a new order so your stock arrives before you run out.

For small businesses this is especially important because customers expect fast shipping stockouts can hurt platform rankings and shipping delays are common.

A reorder point gives you a clear numbers based trigger for when to reorder. So instead of guessing or ordering based on instinct, a reorder point uses your actual sales data and supplier timelines. This is especially important for e-commerce businesses or any businesses that carry inventories where customer expectations for fast shipping are high and stockouts can affect profit, and cashflow.

Basic formula:

Reorder Point = (Average Daily Sales × Lead Time) + Safety Stock

Average Daily Sales

• The average number of units you sell per day

• Calculated using recent sales data such as the last three to six months

• Helps you understand how quickly inventory moves

• Should be adjusted for seasonal increases or promotions

Lead Time

• The total number of days it takes to receive inventory after placing an order

• Includes production time shipping time customs delays and fulfillment processing

• Can vary by supplier so it should be reviewed regularly

• Longer lead times require higher reorder points

Safety Stock

• Extra inventory kept on hand to protect against unexpected demand or delays

• Helps prevent stockouts during busy seasons

• Especially important for e commerce businesses with shipping delays

• Often calculated as one to two weeks of average sales depending on reliability
  
  For Example:
  If you sell on average 6 units per day, your supplier lead time is 20 days and you need a minimum of 100 units in inventory at all times, your reorder point is 220 units. When inventory reaches this level it is time to reorder.

How to Start Tracking Inventory

If you are new to selling products tracking inventory may feel complicated. The good news is you can start simple and improve your system as your business grows. Inventory planning does not have to be stressful. Understanding your reorder point and maintaining accurate books allows you to prepare ahead of time instead of reacting to problems when they arise.

Step 1: Choose One System

• Use one primary system to track inventory such as your e commerce platform accounting software or inventory app

• Avoid tracking inventory in multiple spreadsheets that do not sync

• Consistency matters more than complexity

Step 2: Record Every Product

• Create a list of all products you sell

• Include product name SKU purchase cost and selling price

• Group similar products together to make tracking easier

Step 3: Track Inventory In and Out

• Record inventory purchases as soon as they are ordered or received

• Make sure every sale reduces inventory automatically or is updated regularly

• Include damaged lost or returned items so counts stay accurate

Step 4: Track Cost of Goods Sold

• Record the cost of each product including supplier price shipping and duties

• Accurate cost of goods sold helps you understand true profitability

• This information is essential for bookkeeping and tax reporting

Step 5: Set Minimum Inventory Levels

• Use reorder points to set a minimum stock level for each product

• This creates an early warning before you run out of inventory

• Adjust levels as sales volume increases

  Your minimum inventory level is the lowest amount of stock you are willing to let inventory reach. If inventory falls below this level, you are at risk of running out before new stock arrives. This level is not a buffer aka safety stock. It is a warning threshold.

Step 6: Review Inventory Regularly

• Review inventory reports weekly or monthly

• Look for fast sellers slow movers and products that are tying up cash

• Make changes before issues affect cash flow

Step 7: Keep Inventory and Bookkeeping Aligned

• Inventory numbers should match what is recorded in your books

• Differences often mean missed entries or tracking errors

• Regular reconciliation saves time and stress later

Bookkeeping Tips:

• Sync inventory with your bookkeeping software: This reduces errors and saves time.

• Monitor sales through rates: Knowing how fast products sell helps refine reorder points.

• Factor in fulfillment and storage costs: These costs affect how much inventory you can realistically hold.

• Avoid over ordering new products: Test demand first before committing large amounts of cash.

Common Inventory Mistakes We See as Bookkeepers

Working with small business owners across Canada, we often see inventory issues that have little to do with demand and everything to do with planning and tracking. These mistakes tend to show up most clearly during busy seasons, when small miscalculations quickly turn into cash flow problems or lost sales.

One of the most common mistakes is confusing safety stock with minimum inventory level. Many business owners treat these two concepts as interchangeable, but they serve very different purposes. The minimum inventory level is the absolute floor. Once inventory reaches this point, there is no margin for error. Safety stock, on the other hand, exists specifically to prevent inventory from ever reaching that floor. When the two are blurred together, businesses often sell into safety stock without realizing it, delay reordering because inventory still appears sufficient, and then experience sudden stockouts when a shipment is delayed. Safety stock is not inventory that should be planned for sale. Its role is to protect operations, not to support short-term revenue.

Seasonality is also commonly ignored when setting reorder points. Many new small businesses calculate inventory needs using average sales across the entire year. This approach underestimates demand before peak seasons and leads to over-ordering once sales slow down. Sales velocity during busy periods should drive inventory planning, not annual averages. Failing to adjust for seasonality is one of the fastest ways to run into inventory shortages during high-demand periods.

Another mistake we see is ordering inventory without reviewing cash flow. Inventory planning does not exist in isolation. Large inventory purchases affect liquidity, especially for small businesses. When orders are placed without considering available cash, upcoming expenses, and how quickly sales will convert back into cash, even profitable businesses can experience financial strain. Inventory should support growth, not create pressure on cash flow.

Inaccurate cost of goods sold also leads to poor inventory decisions. When shipping, duties, fulfillment fees, or supplier price increases are not included in product costs, inventory decisions are made using incomplete information. This creates false confidence and can result in overstocking products that are less profitable than expected. Accurate costing is essential for deciding how much inventory to hold and when to reorder.

Finally, poor alignment between inventory tracking and bookkeeping creates ongoing problems. Inventory counts should match what is recorded in the books. When they do not, it often signals missed purchases, incorrect entries, or unsynced sales data. These gaps turn reorder points into rough estimates rather than reliable planning tools. Regular reconciliation between inventory systems and bookkeeping records prevents small errors from becoming costly issues later.

At Falconsight Accounting Inc. we are a remote bookkeeping firm based in London Ontario serving small business owners across Canada including retail and e commerce businesses. We help business owners understand their numbers so they can plan inventory manage cash flow and grow with confidence.

Contact us today to make sure your bookkeeping and inventory are ready for your busy season.