How it works
Shrink is inventory you paid for but can't sell or account for: theft, damage, spoilage, vendor short-ships and paperwork errors. You find it by comparing what your records say you should have with what's actually on the shelf.
Retailers usually report shrink as a percentage of sales, which makes it easy to compare across stores and periods of different sizes.
Example. Your records show $52,000 of inventory at cost. The count comes in at $50,700. Shrink is $1,300.
With $210,000 in sales over the same period, that's 0.62% of sales, or 2.5% of the inventory.
At a 30% gross margin, you'd need $4,333 in extra sales just to earn back the $1,300.
Why the last number matters
A missing item doesn't just cost you its price. You have to sell several more just to replace the profit. That's often the easiest way to explain to staff why a few missing items a day add up.
Where shrink comes from
- Theft by customers or staff.
- Receiving errors, such as a delivery that was billed for more than was actually dropped off.
- Damage and spoilage that's thrown out without being written off.
- Pricing and scanning errors that make your book inventory wrong.
Checking deliveries against the invoice and logging every write-off are two of the cheapest ways to shrink the number, because they turn unexplained loss into something you can see.
Common questions
- What if my count is higher than my records?
- That's an overage, and it usually means an error somewhere, like a delivery that wasn't entered, an item rung up under the wrong code, or a mistake in the count. The calculator flags it instead of treating it as good news.
- Should I use cost or retail values?
- Either works if both inventory numbers use the same one. Using cost tells you the money actually lost. Retail values make shrink look bigger.
Last updated October 11, 2026.