Why Planning Your Inventory in Dollars Is Costing You Money

Walk into most S&OP meetings at a founder-led brand and listen to how the plan gets discussed.

"We need $4.2 million this month." "We're tracking to $48M for the year." "If we hit our revenue target, we're good."

It sounds like planning. It isn't.

Planning in dollars tells you what you want to earn. It doesn't tell you what you need to make, when to order it, or whether the inventory you have is actually enough to get there. Those questions only get answered when you plan in units: cases, each, whatever the physical count is for your products.

The switch sounds simple. The implications are significant.

What a price increase actually looks like in dollars

Say your brand takes an 8 percent price increase. Raw materials went up, freight costs climbed, and you need to protect your margin. Reasonable decision.

Now look at what happens to your demand plan if you're running it in dollars.

Your revenue target goes up 8 percent automatically. On paper, the plan looks like growth. The team feels good about it. Nobody questions whether the volume is actually there to support it.

But here's what the dollar plan isn't asking: will your customers keep buying at the new price?

If a consumer has been spending $10 on your product for two years and it's now $10.80, some of them will adjust. They'll buy less frequently. They'll try a cheaper alternative. They'll wait for a promotion. The price goes up, the volume comes down, and if you're only watching dollars, you don't see it happening until you're sitting on inventory you can't move.

Plan in units and the question becomes unavoidable. You had customers buying 5,000 cases a month at the old price. How many will buy at the new price? That's a real question that requires a real answer, not an assumption that an 8 percent price increase translates cleanly into 8 percent more revenue.

What a flash sale looks like in dollars

The same problem works in reverse with promotions.

Your DTC team runs a 50 percent off flash sale to clear slow-moving inventory or hit a quarterly revenue target. In a dollar-based plan, this looks manageable, you model the revenue impact of the discount and move on.

What the dollar plan obscures is that to generate the same revenue at half the price, you need to sell twice as many units. If your forecast said you'd move $100,000 of product this month and the flash sale cuts your average price in half, you now need to sell $200,000 worth of units at the full price equivalent to hit the same number.

That's twice the physical product. If you planned in dollars and didn't think through the unit volume, you either run out of stock in the first two days of the sale, which is embarrassing and expensive, or you're scrambling to pull forward production that was planned for next month.

Neither outcome is the flash sale team's fault. It's a planning failure.

What product mix does to your dollar plan

There's a third version of this problem that shows up less obviously but creates the same mess.

Most brands have a range of products at different price points. Some are full-price core SKUs. Some are on promotion at a particular retailer. Some are in a bundle. Some are close to end-of-life and being cleared at a discount.

When you plan in dollars across a portfolio like this, the mix matters enormously. A month where a high-volume, low-margin SKU outsells your high-margin hero product can look identical in dollars to a month where the mix was completely different, and the inventory requirement, the production plan, and the margin outcome are nothing alike.

Plan in units and the mix becomes visible. You see which SKUs are moving, which are stalling, and what the implications are for what you need to have on hand. The dollar number at the end is an output of the unit plan, not the input to it.

The S&OP meeting test

There's a simple way to tell whether a brand is planning in dollars or units: listen to how the monthly review is run.

If the conversation is "we need $4.2 million this month and we're currently tracking to $3.8 million so we need to find $400K somewhere". That's a dollar plan. The discussion will be about where to find revenue, not about what's actually happening with the product.

If the conversation is "we need 4,200 cases this month across these four SKUs, we currently have 3,600 planned, and here's what we're going to do about the gap". That's a unit plan. The discussion is grounded in the physical reality of what needs to be made, ordered, and shipped.

The second conversation is harder. It requires knowing your actual volumes, your actual inventory positions, and your actual lead times. But it's the conversation that leads to decisions you can act on.

How to make the switch

Start with your top five SKUs. For each one, go back six months and pull the actual unit sales alongside the revenue. Look at what happened to unit velocity when you ran a promotion, when you took a price increase, when a retailer ran a feature. The relationship between dollars and units is rarely as clean as the revenue plan suggests.

Then rebuild your next monthly forecast in units first. Set a volume target for each SKU. Let finance convert that to a dollar number at the end. That conversion is the easy part, the volume call is where the real work is.

It will feel more complicated for the first month or two. You'll have to answer questions you haven't had to answer before, like what your actual repeat purchase rate is, and whether the volume assumption in the plan is realistic given your current distribution.

Those are uncomfortable questions to sit with. They're far less uncomfortable than the alternative, discovering the answer when your inventory doesn't match your plan and your customers are already somewhere else.

If you want to see what a unit-based demand plan looks like for your specific SKUs and channels, we're happy to walk through it.