Inventory glossary
What is Inventory shrinkage?
Inventory shrinkage is the loss of stock between what your records say you have and what you actually have on hand, caused by theft, damage, supplier errors, or counting mistakes.
Shrinkage throws off your numbers everywhere else. If Shopify says you have 40 units of a candle but only 33 are on the shelf, your reorder point calculations and sales forecasts are working off a false starting number. You might reorder too late because the system thinks you have more cushion than you do, or you oversell to customers because the inventory count is wrong.
The fix is not complicated. Count stock regularly, record every adjustment with a reason, and compare your physical counts to your system counts often enough to catch problems early. Small stores that skip this step usually only notice shrinkage when a customer order cannot be fulfilled.
Formula
Example
A candle store's system shows 150 units of a lavender candle. A physical count finds 138 units on the shelf. Shrinkage is 150 minus 138, which equals 12 units. If each candle costs 8 dollars to make, that is a 96 dollar loss that was never recorded as a sale or a return.
Common mistakes
- Assuming shrinkage only means theft, when damage and clerical errors are often the bigger cause.
- Not recording adjustments immediately, so the gap keeps growing unnoticed.
- Ignoring small, frequent losses because each one seems too minor to investigate.
Inventory shrinkage and SteadyShelf
SteadyShelf forecasts and reorder suggestions rely on your current Shopify stock counts, so uncorrected shrinkage can throw off order-by dates and suggested order quantities.
SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.
Related terms
Inventory accuracy · Cycle count · Physical inventory count · Inventory adjustment · Stocktake
FAQ
How is inventory shrinkage different from a stockout?
A stockout means you have sold out of a product and have zero units left to sell. Shrinkage means your records and your actual stock do not match, whether or not you have any units left. You can have shrinkage and still have plenty of inventory on the shelf.
How often should a small Shopify store check for shrinkage?
Most small stores do well with a monthly or quarterly count of their best-selling items, plus a full count once or twice a year. High-value or high-theft-risk items are worth checking more often.
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