Inventory how-to

How to build an inventory budget for the next quarter

Build the budget by forecasting unit sales per SKU for the quarter, multiplying by your cost per unit, and adding a buffer for safety stock and lead times.

Short answer: Build the budget by forecasting unit sales per SKU for the quarter, multiplying by your cost per unit, and adding a buffer for safety stock and lead times. Then group totals by supplier and month so you know how much cash you need and when.

Start with a sales forecast per SKU

Use recent daily sales for each variant, not last year's total revenue. If a SKU sells 4 units a day, that is 112 units for a 28-day period. Multiply that rate out across the quarter (roughly 90 days), adjusting for known promotions, discontinued items, or new products with no history.

Turn units into dollars

Multiply forecasted units by your cost per unit (what you pay the supplier, not retail price). Add freight or duties if you track those separately. Sum this across all SKUs to get a raw inventory spend number before buffers.

Add safety stock and lead time buffers

Inventory budgets fail when they ignore lead times. For each supplier, add extra units equal to your safety days times daily sales, since that stock sits in the warehouse before it sells. This increases your cash need but protects you from stockouts if a shipment is late.

Spread the spend across the quarter by order timing

Do not assume you spend the whole budget on day one. Map out order-by dates per SKU based on lead time, then place the expected PO value in the month it will actually be paid. This gives you a cash flow view, not just a quarter total.

Build in a contingency

Add a percentage on top for unexpected reorders or price increases from suppliers. Keep this separate so you can see your planned spend versus your buffer spend.

Step by step

  1. List every active SKU and pull its daily sales rate from recent history.
  2. Multiply daily sales by the number of days left in the quarter to get forecasted units.
  3. Multiply forecasted units by unit cost to get raw spend per SKU.
  4. Add safety stock units (daily sales x safety days) per supplier and convert to dollars.
  5. Group spend by supplier and by expected order date to build a month-by-month cash view.
  6. Add a contingency line for unplanned reorders.
  7. Review against last quarter's actual spend and adjust for known changes like new products or discontinued lines.

Worked example

Say a store sells a hoodie at 5 units a day, cost $18 per unit, with a supplier lead time of 20 days and 7 safety days. For a 90 day quarter: forecasted units = 5 x 90 = 450 units, raw spend = 450 x $18 = $8,100. Safety stock = 5 x 7 = 35 units = $630. Total budget for that SKU is $8,730, and the order-by date falls when on-hand stock drops to cover the 27 day lead time plus safety window (5 x 27 = 135 units on hand).

How SteadyShelf helps

SteadyShelf forecasts daily sales per variant and gives you order-by dates and suggested quantities per SKU, which covers the unit and timing side of this budget. It does not build a dollar budget, cash flow report, or contingency planning for you, so you will need to export the quantities and multiply by cost yourself in a spreadsheet.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

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

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FAQ

Should I use last year's same quarter as my budget baseline?

Only as a sanity check. Use recent sales velocity (last 28 to 90 days) as your main driver, since it reflects current demand. Last year's numbers help you spot seasonality once you have over a year of history, but they should not replace a current sales rate.

How do I handle new products with no sales history in the budget?

Estimate based on a similar existing product's early sales rate, or use the supplier's minimum order quantity as your starting budget line. Flag these as estimates and revisit the budget after the first few weeks of real sales data.

Let SteadyShelf do this math for every SKU

Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.

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