Inventory glossary

What is Average inventory?

Average inventory is the typical amount of stock a store holds over a given period, usually calculated from the beginning and ending inventory of that period.

Average inventory smooths out the ups and downs between your stock levels at the start and end of a month or year. A single snapshot can be misleading if you just received a big shipment or just sold through a bestseller, so averaging gives a more honest picture of how much cash is tied up in stock over time.

Shopify store owners use average inventory mainly to calculate other numbers that matter more day to day, like inventory turnover and days inventory outstanding. If you want to know how efficiently you are using your cash, you need average inventory as the base figure, not just whatever is sitting on the shelf today.

Formula

Average inventory = (Beginning inventory + Ending inventory) / 2

Example

A candle store starts January with 500 units in stock. By the end of January, after selling and restocking, it has 700 units. Average inventory for January is (500 + 700) / 2 = 600 units.

Common mistakes

  • Using only one point in time, like end of month, and calling it average inventory.
  • Comparing average inventory across periods without accounting for seasonality, which can make a slow month look like a problem.
  • Mixing units and cost value, such as averaging unit counts in one period and dollar value in another.

Average inventory and SteadyShelf

SteadyShelf does not calculate average inventory directly, but its sales forecasts and order-by dates are built on the same stock and sales data you would use to track it.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Inventory turnover · Days inventory outstanding · Beginning inventory · Ending inventory · Carrying cost

Full inventory glossary

FAQ

Can average inventory be calculated in dollars instead of units?

Yes. Use the cost value of beginning and ending inventory instead of unit counts. This is more useful when comparing products with different prices or when calculating financial ratios like inventory turnover.

Why not just use ending inventory instead of an average?

Ending inventory only shows one moment in time. If you just placed a large order or just had a big sale, it will not reflect what you held on a typical day during the period, which makes ratios based on it less reliable.

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