Stagnant Inventory: Should You Hold the Price or Discount to Move It?

The QuickCosting Team

You made the product. You priced it right. And now it's just… sitting there.

The instinct is to hold the line on price because you know what it's worth. But stagnant inventory isn't neutral. It's a slow drain on your cash flow, and the longer it sits, the more it costs you. Here's a simple comparison to make that concrete.

The Setup

Let's use a straightforward example:

  • Unit cost: $40
  • Selling price: $80
  • Batch size: 200 units
  • Total inventory investment: $8,000

We'll compare two approaches:

  • Scenario 1 — Hold the price: Sell at $80. Sales slow down and inventory barely moves. The batch takes 12 months to sell through, and it never fully clears.
  • Scenario 2 — Discount and rotate: Sell at $80 early, then drop to a discounted price in month 3 to clear the remaining stock. With the freed-up cash, you order more products and turn the same volume three times in 12 months.

Scenario 1: Hold at Full Price

Sales follow a slow, stalling pattern:

Month Units Sold Revenue
1 100 (50%) $8,000
2 60 (30%) $4,800
3–12 0 $0
Total 160
2,800

40 units are still unsold after 12 months.

Profit on units sold:

  • Revenue:
    2,800
  • Cost of units sold: 160 × $40 = $6,400
  • Gross profit: $6,400

But you still have

,600 tied up in those 40 unsold units (40 × $40) translated in cash you spent that hasn't come back.

Effective cash returned in 12 months:

2,800
Cash still locked in dead stock:
,600

And critically: after month 2, your cash flow flatlines. No new orders. No reinvestment. Your $8,000 is mostly recovered, but your inventory slot sat idle for 10 months.

Scenario 2: Discount in Month 3, Then Rotate

Same opening sales. But in month 3, instead of waiting, you discount the remaining 40 units to $56 (a 30% discount yet still

6 above cost) to clear them fast.

First batch:

Month Units Sold Price Revenue
1 100 $80 $8,000
2 60 $80 $4,800
3 40 $56 ,240
Total 200
5,040
  • Cost of goods: 200 × $40 = $8,000
  • Gross profit, batch 1: $7,040

Inventory is fully cleared by end of month 3. You reinvest the cash and run the same or similar batches two more times in the remaining 9 months (one batch per quarter).

Batches 2 and 3 follow the same pattern with same sales curve, same discount to close:

  • Revenue per batch:
    5,040
  • Profit per batch: $7,040

Full year totals (3 rotations):

Scenario 1 Scenario 2
Units sold 160 600
Total revenue
2,800
 $45,120
Total COGS $6,400 4,000
Gross profit $6,400 1,120
Unsold units 40 0
Cash tied up in dead stock
,600
 $0

What the Numbers Are Actually Saying

Scenario 2 earns

4,600 more in gross profit over the same 12 months, not because you sold at a higher price, but because your cash kept moving.

That's a snippet of the cost of sitting inventory: it's not just the unsold units, it's every order you couldn't place or every batch you couldn't run, because your cash was frozen.

There are things this simple model doesn't capture that make the case even stronger:

  • Storage costs accumulate on every unit that doesn't move.
  • Product risk such as expiry, obsolescence, damage.
  • Opportunity cost to invest $8,000 in new or more products, have a better supplier deal or a larger batch at lower unit cost.

The discount isn't a loss. The wait is.

How to Apply This to Your Business

You don't need to slash prices the moment sales dip. But it's worth setting a simple rule for yourself:

  1. Define your stagnation threshold
    If a product hasn't moved X% of stock by week 6 (or whatever fits your cycle), it triggers a review.
  2. Calculate your floor price
    Know the minimum you can discount to and still cover your unit cost. In the example above, anything above $40 recovers the outlay; above $40 + overhead allocation is genuinely profitable.
  3. Discount with intent
    A targeted clearance to free up cash and reorder is a strategy. Randomly cutting prices without a plan is just margin erosion.

The goal isn't to maximize the price on every unit. It's to keep your cash working and eliminate hidden expenses known as inventory carrying costs.