Ten inventory formulas every small business should know

Inventory looks like it needs a degree in mathematics. It does not. Almost everything you need to run stock sensibly comes down to ten short formulas, and most of them are multiplication or division you can do on a phone calculator while standing in the aisle.

This is the cheat sheet. Each entry says what to calculate, what the answer tells you, and where to read the full lesson. Skim it now and come back when a question comes up.

How much do I have?

• Stock value = quantity x unit cost. Sort items by it and you have your A, B and C groups. See The 80/20 rule that quietly runs your shop.
• Available stock = on hand - reserved - blocked. It is the number you can actually promise a customer.
• Days of cover = on hand / average daily use. It turns a quantity into time, which is the unit buyers think in. Days of cover and sell-through has the lesson.

When and how much do I order?

• Reorder point = (average daily use x lead time) + safety stock. It tells you when. How to set a reorder point for an inventory item covers it.
• Economic order quantity = the square root of (2 x annual demand x cost per order / holding cost per unit per year). It suggests how much. EOQ explained walks through it.

A reorder point answers when. An order quantity answers how much. Mixing them up is how shops end up with both too much and too little.

How well am I doing?

• Inventory turnover = cost of goods sold / average stock value. See Inventory turnover: how to calculate it.
• Sell-through = units sold / units received x 100. It shows how fast a delivery is clearing.
• Fill rate = orders shipped complete / total orders x 100. Fill rate and stockouts explains it.
• Inventory accuracy = items that match / items counted x 100. See How to measure inventory accuracy.

What does it cost me?

• Landed cost per unit = (goods + freight + duties + handling) / units received. Landed cost shows how it changes your margin.
• Margin = (price - cost) / price. Markup = (price - cost) / cost. They are not the same, and Markup vs margin shows what that costs people.

Why these ten

Each one replaces a hunch with a number. 'I think we have plenty' becomes 'thirty days of cover.' 'Deliveries seem slow' becomes 'a fill rate of 92 percent.' Numbers are not smarter than hunches, but they can be compared with last month, and that is where improvement starts.