Keeping Up With Your eBay Inventory Inventory management can make or break a business. So make sure your eBay business is headed for success with these tips on storing and tracking your inventory.

Editor's note: This article is excerpted from Make Big Profits on eBay.

A strong appeal of selling on eBay and elsewhere online is the low cost and flexibility of operating in a virtual world. But if you sell merchandise, whether or not you have a brick-and-mortar retail operation, you need a place to store your merchandise and you'll need to track your inventory.

Storing Your Inventory

Unless you use a drop-shipper, you need space to securely store your products. How much space you need depends, of course, on what you're selling and the amount of inventory you keep on hand. It's also helpful if your storage area is roomy enough to function as a packing and shipping station. Your options include:

• Space in your home. If you are homebased and your merchandise doesn't take up a lot of room, you may have adequate storage space in your home. Designate a large closet or a room for your products. Many homebased eBay sellers work from their garages. For example, Karen Kelley (eBay User ID: thepinkboutique) has turned her garage into a small warehouse that accommodates thousands of pieces of merchandise. Seasonal items are kept in marked boxes until it's time to bring them out; garments ready to be auctioned hang on racks.

• Self-storage facilities. You can rent space equivalent to anything from a large closet to an extra garage at a self-storage facility. Many offer options ranging from air-conditioned space, indoor access, loading docks, and more. Some operators will accept deliveries on your behalf if you can't be there to sign for them yourself. Self-storage is a great option for a homebased business that needs a little extra space or even a retailer who wants storage at a lower price than at a commercial location. The self-storage industry is rapidly expanding and extremely competitive, so shop around before you make a decision.

• Commercial warehouse space. If you maintain a sizeable inventory and your items tend to be heavy, you may need a commercial warehouse facility with a shipping dock. You'll find this type of commercial space in industrial (light and heavy) parks and mixed-use commercial areas. Some offer only warehouse space; others have small offices and even showrooms adjacent to the warehouse. Gary Neubert (eBay User ID: gatorpack) has a 5,000-square-foot warehouse with a loading dock. After they closed their retail shop, Ron and Sheri Walker (eBay User ID: beansantiques) turned their building into what they call an "eBay factory" with a computer room, storage areas, and packing stations.

• Public (commercial) storage. A viable option to your own commercial space is a public warehouse. Public warehousing companies can essentially function as your shipping department. In addition to storage, their services include pick and pack operations, packaging, and labeling, and they will arrange for shipping on the carrier you specify. Public warehousing prices are based on usage--you only pay for the space and labor you use. Contract warehousing is similar in terms of services, but you pay fees whether or not you use space and services. Find public warehouse companies in your local telephone directory or through an internet search.

Remember that the more storage space you have, the easier it is to purchase off-season inventory that you hold until the time is right to sell. However, always remember to calculate storage costs into your cost of selling those items.

Whatever space you have designated for storage needs to be properly equipped and functional. You'll likely need sturdy shelves for boxes or bins, rods for hanging items, and a table to use for packing and labeling. Assign specific areas for items "to be listed," "listed," "sold, waiting for payment," and "ready to pack and ship."

Your storage facility's environment should be appropriate for your products. If your merchandise is temperature sensitive, make sure you use an air-conditioned facility. It should be dry, free of insects and other pests, and free of household odors such as cigarette smoke and pets.

Tracking Your Inventory

Do you know how Sam Walton became the world's most successful retailer? It wasn't because of a clever name, snazzy logo, creative ads, sharp frontline people, or even low prices--it was because of the company's superior inventory management. Business students in colleges and universities around the world study Wal-Mart's system, and smart companies copy it. Your own inventory management system doesn't have to be as high-tech or complex, but it does have to be as serious.

At any given moment, you need to know what you have on hand, what you've purchased that's on the way, what you need to buy, what's up for auction, what's available in your eBay store and on your website, what's been sold, and what's been shipped.

For small, low-volume sellers, a simple index card system or spreadsheet will be sufficient. Serious eBay sellers track this information electronically. Most auction management software packages include inventory tracking.

In addition to keeping track of the information, you also need to consider the physical flow of your inventory. At eBay drop-off franchise QuikDrop, items move systematically through the store. After an item is accepted at the front counter, it goes to the photo area. Once it's photographed and the listing is written, it's moved to the area designated for items currently up for auction. When the auction closes, it's moved to the sold rack (or to the return-to-customer area if it didn't sell) until payment is received; then it goes to the shipping rack for packing and shipping.

Set up a system that works for the type of merchandise you're selling and that will allow you to be as efficient as possible.

Your inventory tracking system should tell you what's selling well--and what isn't. When items have overstayed their welcome in your warehouse, be creative about moving them out, even if you take a loss. For example, if Kathy Logan (eBay User ID: rosie_peachstate), who sells craft supply products, has a product that isn't selling well, she will make something with it, and include a photo of that item in her auction listing to give potential buyers a better idea of what they can do with it. You can also put together groups of items and sell them in a single lot with a low starting bid, or offer a free bonus to the winning bidder. If you can't manage to sell it, donate it to charity--do whatever you have to do to free up your storage space and your cash for more products, even if it sometimes means taking a loss.