What is Shrink rate?

Shrink rate matters because it tells you how much your actual stock quietly falls short of your books. If you plan reorders using numbers from your system but your real stock is lower due to shrink, you will think you have more cushion than you do and run into stockouts without warning.

To use it, track the dollar or unit value of inventory lost between counts and compare it to your expected inventory value. Review it by product category or location if you have more than one, since shrink often clusters around certain items like small accessories or high-value SKUs that are easy to misplace or steal.

Formula

Example

A candle store expects to have 500 units worth $4,000 based on its records. A physical count finds only 480 units worth $3,840. The shrink is $4,000 - $3,840 = $160. Shrink rate is 160 / 4000 x 100 = 4 percent.

Common mistakes

• Confusing shrink with normal sales that were not recorded properly, which inflates the shrink number.
• Only checking shrink once a year instead of after regular counts, which hides where losses are happening.
• Ignoring shrink rate by SKU and only looking at a total, which masks problem products.

Shrink rate and SteadyShelf

SteadyShelf forecasts and reorder suggestions rely on your on-hand quantities being accurate, so a high shrink rate on key SKUs can throw off its order-by dates until you correct stock counts.

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

Related terms

Inventory shrinkage · Inventory accuracy · Cycle count · Physical inventory count · Inventory adjustment

Full inventory glossary

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