How to get your Stock Shrinkage figure

Here is how you can calculate your stock shrinkage in just a few minutes. You do have the information now.

The Importance of Calculating Stock Shrinkage

Regular stock shrinkage calculations are essential for the following:

1. Identifying inventory loss trends
2. Implementing effective inventory control techniques
3. Optimising your retail operations
4. Improving your overall profit margins

How to Calculate Stock Shrinkage

Follow these steps.

Using the figures for the 2023/24 year:

1. Determine your recorded inventory value: According to your records, this is the total value of stock. Your accountant should know this now.

2. Conduct a physical inventory count: You should know this from your stocktake.

3. Calculate the shrinkage rate:

   The Shrinkage Rate formula = (Recorded Inventory Value - Actual Inventory Value) / Recorded Inventory Value x 100

    

For example, if your recorded inventory value is $100,000 and your actual inventory value is $97,000, you have lost $3,000 of stock.

However, as stock shrinkage is commonly expressed in percentages, let's calculate this figure.

Shrinkage Rate = ($100,000 - $97,000) / $100,000 x 100 = 3%

Common Causes of Inventory Shrinkage

Understanding the reasons behind shrinkage is crucial for implementing effective inventory loss prevention strategies. These are the common reasons:

1. Shoplifting
2. Employee theft
3. Administrative errors
4. Supplier fraud
5. Damage or spoilage

   When I did it for a client, I used departments, and we came up with this chart, which looks about right.

   

The Role of Technology in Small Business Inventory Tracking

Investing in the right technology can significantly improve your inventory management:

1. POS systems: Offer real-time inventory tracking and sales data.
2. Camera: This is one of the few items that courts do accept.
3. Security system: You do not need everything, just a sample, to significantly affect shoplifting.

Conclusion

Mastering stock shrinkage calculation and implementing effective inventory reduction strategies are crucial for optimising retail profit. By utilizing the right tools, such as a robust POS system for businesses and implementing vital inventory control techniques, you can minimize losses and maximize profitability in your brick-and-mortar store.