Module 03 of 09
Inventory management basics
Too much inventory ties up your cash and clutters your space. Too little means stockouts and lost sales. Good inventory management is the discipline of staying between those two failure modes — consistently, with as little manual effort as possible.
The basics: receiving, counting, tracking, reordering
Every inventory system — from a spreadsheet to enterprise software — does four things: it records what came in, what's on hand, what was sold, and when to reorder. Understanding this cycle is more important than choosing software.
STEP 1
Receiving
When product arrives, check it against the packing list. Record quantities into your system. Note any damage or discrepancies immediately.
STEP 2
On-hand count
Your system tracks current stock based on starting count + received – sold. Physical counts verify the system is accurate.
STEP 3
Reorder points
Set a minimum quantity for each product — when stock hits that number, it's time to reorder. This prevents stockouts without constant manual checking.
In this Module
The basics: receive, count, track, reorder
Manual vs. software
Reorder point calculator
Shrinkage
Real-world examples
Related Modules
POS systems
Vendors & suppliers
Markets & pop-ups
Manual vs. software-based systems
The right system depends on your product count, turnover speed, and how much time you want to spend on inventory tasks.
Spreadsheet (under ~100 SKUs, slow turnover). A Google Sheet with columns for SKU, product name, unit cost, quantity on hand, and reorder point is perfectly adequate for many small retailers. You update it when product arrives and when you do physical counts. Labor-intensive but no cost and no learning curve.
POS-integrated inventory (most retail businesses). Square, Lightspeed, and Shopify all track inventory automatically as you make sales. Items decrease in count with each transaction. You still need to receive new stock manually, and physical counts to catch shrink, but the daily management is largely automatic.
Dedicated inventory software. For businesses with hundreds of SKUs, multiple locations, or complex purchase orders, a system like Cin7, Katana, or Sortly adds capabilities the POS alone can't provide. Usually not necessary until you're managing 500+ products or have multi-location needs.
FOR MARKET VENDORS
If you primarily sell at markets with limited SKUs, a simple count sheet — a printed list of your products, filled out by hand at pack-out and market close — is often better than software. It's faster, works without Wi-Fi, and the data from each market day helps you pack smarter next time.
Reorder point calculator
A reorder point is the quantity at which you place a new order. The goal is to reorder early enough that new stock arrives before you run out, accounting for your supplier's lead time.
Shrinkage — what it is and how to catch it
Shrinkage is the difference between what your inventory system says you should have and what's actually on the shelf. It happens through shoplifting, employee theft, vendor short-ships, damaged goods, and counting errors. Most small retailers see shrinkage of 1–2% of inventory value annually — higher is a signal something is wrong.
CATCHING SHRINKAGE EARLY
Do a full physical count at least twice per year. For high-value items, count weekly. Compare the system's expected on-hand to actual. Any consistent discrepancy on specific items — not random errors, but the same product always coming up short — warrants a closer look.
THE MOST COMMON SOURCE SMALL BUSINESSES MISS
Receiving errors. If your supplier sends 11 units and you enter 12 into the system without checking, that unit never existed — but your system says it did. Check every delivery against the packing slip before entering it.
Real-world examples
Nina — specialty kitchen store
Independent retail, 3 years
Nina started with Lightspeed and imported her full 400-SKU product catalog from her old system. It took a full day but paid off immediately — she could see at a glance which items were running low and what her bestsellers were. Her first physical count revealed $1,800 in shrinkage she hadn't tracked. Half was receiving errors, half was a single high-theft item she moved behind the counter. "I didn't know what I didn't know until I counted."
Tamara — handmade jewelry, market vendor
15 markets per year, online shop
Tamara uses a printed pack-out sheet for each market — a list of every piece she makes with a column for quantity packed and quantity returned. The difference is what sold. She enters that data into a spreadsheet after each market. After a year she had a clear picture of which pieces sold fastest at which markets, and she adjusted her production mix accordingly. Total software cost: $0.