Inventory Velocity Bidding: Matching Ad Spend to Stock Movement
A product turning over 8 times per year needs a fundamentally different advertising strategy than one turning 40 times.
Understanding Velocity
Inventory velocity describes how quickly products move from warehouse to customer. High velocity products sell frequently, generate cash quickly, and need constant restocking. Low velocity products move slowly, tie up capital, and create working capital strain.
Smart Bidding doesn't understand velocity. It treats a fast-moving £20 item the same as a slow-moving £20 item, even though their commercial implications are completely different.
The Cash Flow Impact
A high velocity product generates cash to fund ad spend continuously. A low velocity product requires you to fund ads for months before recovering the investment.
Bidding Implications
Velocity should inform bidding strategy in several ways:
- High velocity + high margin: Bid aggressively, these fund your business
- High velocity + low margin: Bid conservatively, volume exists but profit is thin
- Low velocity + high margin: Moderate bids, worth winning but don't overpay
- Low velocity + low margin: Minimal bids or exclude, poor capital efficiency
Velocity Tiers
Segment products into velocity tiers for differentiated treatment:
- Tier 1 (Fast movers): Turn 6+ times annually. These products can afford aggressive bidding because cash cycles quickly.
- Tier 2 (Moderate): Turn 3-6 times annually. Standard bidding approach, balance visibility with profitability.
- Tier 3 (Slow movers): Turn 1-3 times annually. Conservative bids, careful monitoring of capital tied up.
- Tier 4 (Dead weight): Turn less than annually. Consider excluding from paid or dramatic markdown.
Calculate Your Tiers
Pull velocity data from your inventory system and create custom labels in your product feed. This enables campaign segmentation by velocity tier with appropriate bidding strategies for each.
Implementation
Steps to implement velocity-based bidding:
- Calculate velocity for each SKU using last 12 months of data
- Define tier thresholds appropriate for your category
- Add velocity tier as a custom label in your product feed
- Create campaign segments or use bid adjustments by tier
- Set ROAS/POAS targets that reflect velocity economics
- Review and recalculate velocity quarterly
The Balancing Act
Velocity bidding requires balance with other priorities:
- New product launches: No velocity data yet, needs different approach
- Seasonal products: Velocity varies dramatically by season
- Strategic products: Some slow movers are important for range
- Margin considerations: Velocity alone doesn't capture profitability
Don't Over-Optimise
Pure velocity optimisation could eliminate slow-moving but strategically important products. Use velocity as one input alongside margin, stock levels, and strategic importance.
Next Steps
Start by calculating velocity for your top 100 SKUs by spend. This will reveal where you're over-investing in slow movers.