Inventory glossary

What is Specific identification method?

Specific identification method is an inventory valuation approach where each unit's actual cost is tracked individually and used when that exact unit is sold, instead of averaging or assuming an order of sale.

For a small Shopify store, this method matters when you sell items that are not interchangeable, such as one-of-a-kind jewelry, custom furniture, or vintage goods, where each piece has its own cost and its own story. It gives you an exact gross margin per item sold rather than a blended estimate.

You use it by tagging each unit with a serial number, batch ID, or SKU variant tied to its purchase cost, then recording that specific cost as cost of goods sold at the time of sale. This only works well with low volume and high value items, since tracking every single unit becomes unmanageable once you sell hundreds of similar units per week.

Example

A store sells handmade rugs. Rug A cost $120 and Rug B, a similar size but different pattern, cost $150. When Rug A sells for $300, the store records cost of goods sold as $120, giving a gross margin of $180. When Rug B sells for $300, cost of goods sold is $150, giving a gross margin of $150. Each sale uses its own actual cost, not an average of $135.

Common mistakes

  • Trying to apply it to high-volume, identical SKUs where tracking each unit's cost is not practical.
  • Forgetting to update the record when a unit's landed cost changes due to extra fees or returns.
  • Mixing it with average costing for some products without clear rules, which makes reporting inconsistent.

Specific identification method and SteadyShelf

SteadyShelf forecasts and reorders by SKU and quantity, so it works alongside specific identification costing but does not track individual unit costs itself.

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

Related terms

Inventory valuation · Weighted average cost · FIFO · LIFO · Cost of goods sold

Full inventory glossary

FAQ

When should a small store use specific identification instead of average costing?

Use it only for unique, high-value, low-volume items like custom or one-of-a-kind products where each unit has a distinct cost worth tracking separately. For regular stocked SKUs sold in volume, average costing or FIFO is easier to manage.

Does specific identification affect how purchase orders are placed?

No. It only affects how cost of goods sold and margin are recorded at the time of sale. Reordering decisions still depend on sales patterns, lead times, and stock levels, not on which valuation method you use.

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