Inventory Accuracy: How To Calculate & Improve Your Stock Management
Inventory Counts Matter!: No matter the size of your ecommerce store, accurate inventory counts are crucial for managing stock and sales efficiently.
Accuracy Equals Efficiency: Proper inventory management ensures you sell exactly what you have, preventing issues like overselling or stockouts.
Stock Pile or Stock Light?: Managing inventories ranging from 50 to 500,000 products requires a consistent and effective system for keeping track.
Inventory is King: Knowing your exact inventory levels lets you make informed decisions on restocking and sales strategies.
Don’t Guess, Count!: An accurate inventory count is essential for understanding how much product you can confidently sell.
No matter the size of your ecommerce store, you’re going to have some inventory to manage. And whether you’re tracking 50 different products or 500,000 different products, one key thing remains the same—you need an accurate inventory count.
As we’re sure you can imagine, inventory accuracy plays a major role in running an ecommerce business. After all, if you don’t know how much inventory you have, you don’t know how much you can sell.
Doesn’t sound like a good way to run a business, right?
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Inventory accuracy impacts many aspects of your business, from sales and brand sentiment all the way to operations and inventory forecasting.
Read on to learn more about what inventory accuracy is, why it’s so critical, consequences of inventory inaccuracies, and more.
What is Inventory Accuracy?
Inventory accuracy is the difference between what your system says you have and what you actually have in stock. This number is presented in the form of a percentage.
For example, if your horror bookstore had 1,000 books in your inventory record, but an actual count of 900 books, your inventory accuracy rate would be 90%.
Your audience of horror enthusiasts are going to be sorely disappointed if they order a book that your website says is in stock, only for their order to be canceled later due to an inaccurate record.
Astonishingly, the Auburn University RFID Lab discovered that the average retail store’s inventory accuracy rate sits right around 65%. This means there’s a one-third margin of error for the average retail store when it comes to their inventory counts.
However, you should be aiming for a much higher inventory accuracy rate.
While 100% is unrealistic all the time, benchmark studies done by the Warehouse Education Research Council in the past put the median inventory accuracy levels around 99.6%.
This means you should be aiming for a near perfect accuracy rate in order to appease customers.
After all, that means your inventory count at your horror bookstore is off by just four books—a much better rate leading to a much smaller disappointment from your fanbase.
Why is Inventory Accuracy So Important?
Having an accurate inventory count is essential for so many reasons.
Let’s dive deeper into a few of them to showcase why properly tracking inventory is an essential part of running a successful ecommerce business.
It impacts sales and profitability
Keeping accurate inventory records helps improve your overall sales and profitability—and inaccurate records, well, does the opposite.
Sergey Taver, Marketing Manager at Precision Watches, says:
Inventory accuracy is crucial because it directly impacts sales and profitability.
Accurate inventory ensures that products are available when customers want them, maximizing sales opportunities and minimizing unnecessary costs.
It also helps us manage our cash flow more effectively by avoiding overstocking or stockouts.
And the numbers prove Taver’s sentiment.
One survey found that 69% of customers are less likely to shop with you again if their order is delayed by more than two days.
It keeps customers happy
A high accuracy percentage also improves customer satisfaction.
Connor Butterworth, CEO of Southwestern Rugs Depot, explains, “Inventory accuracy ensures we can confidently promise availability and deliver products on time. It keeps customers happy and loyal.”
Customer experience strategist Mamdouh Mounir has written an entire article on LinkedIn about how important promise fulfillment is to business success.
In Mounir’s words:
When you consistently deliver on your promises, be it product quality, service delivery timelines, or advertised features, you cultivate customer loyalty.
Satisfied customers are more likely to become repeat buyers and advocates for your brand, spreading positive word-of-mouth recommendations.
Chris Bajda, owner of GroomsDay, agrees, saying, “Keeping our inventory accurate is like keeping our promise to the customers. It ensures we have the right products available when they want them, which is crucial for providing a seamless shopping experience.”
And a positive shopping experience can have a major impact on how a customer views your business:
It ensures operational efficiency
Inventory accuracy also ensures that your operations are running smoothly and that your inventory management processes are working.
As Maggie Lv, manager at Kabeier, says,
Inventory accuracy is crucial because it ensures operational efficiency.
Accurate inventory data helps us maintain optimal stock levels, reduce holding costs, and avoid the perils of stockouts or overstocking.
This efficiency translates to a smoother shopping experience for our customers and a healthier bottom line for our business.
It helps with forecasting
Having accurate inventory counts also helps you properly forecast your inventory.
After all, how can you properly forecast replenishment needs if you’re working with completely inaccurate inventory numbers?
The importance of inventory accuracy spans across a number of processes, and working with numbers that don’t reflect your physical counts does nothing to help improve your ecommerce business’s success.
The Consequences of Inaccurate Inventory
So now that you know how much accurate inventory matters, let’s talk about some of the consequences that your business can face when dealing with inaccurate counts.
Stockouts
A stockout, or an out-of-stock event, is when your business runs out of or is understocking a product.
Sometimes, during a period of unexpected demand, this can be inevitable.
But oftentimes, it’s because a business didn’t realize they were running low—something that an inaccurate inventory count can lead to.
As Amanda Bunch, CEO of body piercing jewelry store BodyArtForms, explains:
When an item sells out suddenly, there will be missed sales and disappointed customers who can't buy the item they really want.
This means that there is no revenue, decreased customer loyalty and customers may opt for using a direct competitor.
Andrew Grella, CEO of men’s makeup brand Formen Makeup, agrees, saying, “When customers purchase items that are out of stock, it damages brand trust and can result in lost sales and negative reviews.”
Another industry expert, founder of dog treat store PierrePark, Gabe Garcia, shares:
When products are listed as available but are out of stock, customers face frustration and may turn to competitors.
This not only loses potential sales but also damages your brand's reputation and customer trust.
So, product shortages and stockouts are a major consequence of inaccurate inventory records.
And it becomes a bit of a domino effect.
Someone tries to make a purchase. Your product is out of stock. They get a bad taste in their mouth, head to a competitor, and recommend that their friends and family avoid your business.
All because you didn’t realize you were out of a product they wanted.
Overstocking
Another side of the same card is overstocking—or stocking too much of a single product to the point where you can’t sell all of your stock.
This is an especially important consequence to avoid if you stock perishable inventory, but is important for all businesses to ensure they’re not losing money.
Chris Putrimas, CEO of outdoor furniture retailer Teak Warehouse, explains:
If we misjudge our stock levels, we might end up with too many items that don’t sell, tying up capital and storage space.
This impacts cash flow and can lead to higher markdowns to clear out excess inventory.
So, overstocking can lead to inventory going bad—which of course is unsellable.
But, it also means a lot of your warehousing space is taken up by inventory that (a) you don’t realize is there, (b) isn’t selling, and (c) leaves you with less space for inventory that is selling.
Not only are you now losing money on unsellable inventory, but you’re losing money because you can’t stock more products that are selling.
Low brand sentiment
We’ve mentioned this lightly, but let’s dive a little deeper.
When people aren’t able to buy the products they want from your business, it diminishes your brand sentiment.
Working with your brand becomes a frustration, and conversations around your brand start to become more negative.
Sergey Taver, Marketing Manager at watch retailer Precision Watches, shares, “When customers order products that are out of stock due to inventory errors, it leads to cancellations and frustration. This diminishes their trust in your brand and reduces repeat business.”
He provides an example that occurred within his own business:
We once had a customer order a limited-edition watch that was mistakenly shown as available, leading to a cancellation and loss of trust.
When people start having issues buying from your business, they’re going to share their negative experiences with their local and online communities.
This can lead to lower brand sentiment and keep people from wanting to give your business a try.
Dissatisfied customers
Low brand sentiment often occurs due to dissatisfied customers—another major consequence of inaccurate inventory records.
Karen Chen, manager at Journaling Supplies, explains:
I've seen firsthand how inventory accuracy directly impacts our customers' experience.
When we keep our inventory accurate, orders get out faster, and we avoid stockouts or overstocking—basically solving two problems at once.
This not only keeps customers coming back, but also helps us maintain optimized inventory levels, which boosts our overall business performance.
This is why it’s so important to have a good inventory management system in place.
It helps improve customer satisfaction and ensures you can keep your business’s most basic promise to its customers—providing the products it says it can provide.
Lost sales
And finally, one of the biggest consequences is that your business can lose out on key sales.
Generating and increasing sales is the most basic part of running and growing an ecommerce business.
So avoiding loss like this is imperative.
Rongzhong Li, CEO of robot pet brand Petoi, says, “Inaccurate inventory can lead to lost sales. When customers order items that are out of stock, their order gets canceled (affecting immediate sales) and your business’s reputation is damaged (eroding customer loyalty over time).”
Craig Sandeman, founder of auto parts retailer Engine Finder, agrees, explaining:
When our inventory data aligns differently from actual stock levels, we inevitably turn away customers who want to purchase a part we appear to have in stock, leading to immediate lost sales opportunities.
Don’t lose sales.
Improve inventory accuracy through the use of inventory management software and other key practices—more on that shortly.
How To Calculate Inventory Accuracy
Now let’s cover the how-tos for calculating inventory accuracy. You know why it’s important—now you need to get the actual numbers.
To calculate your inventory accuracy, you’ll need to have an actual count of your inventory.
You can find this information through a full inventory audit—or at the very least a cycle inventory count.
Inventory accuracy formula
The inventory accuracy formula is easy to follow. You just need to have two numbers: your recorded inventory count and your actual inventory count.
Then use the following formula to calculate your inventory accuracy rate:
Inventory Accuracy Rate = (Actual Inventory Count / Recorded Inventory Count) x 100
Let’s say you’re running an ecommerce business called DrinkUp that sells different types of insulated water bottles.
Your recorded inventory count looks like this:
- 24oz bottles: 51
- 32oz bottles: 92
- 40oz bottles: 32
- 64oz bottles: 20
- Tumblers: 45
This gives you a recorded total of 240 products.
You conduct an inventory audit and discover that your actual count is:
- 24oz bottles: 54
- 32oz bottles: 76
- 40oz bottles: 32
- 64oz bottles: 15
- Tumblers: 47
This gives you an actual count of 224 products.
Using the above formula, your total inventory accuracy rate would be (224/240) x 100 = 93.3%, which is a pretty good accuracy rate—though there’s still room for improvement.
You’ll want to start conducting investigations as to why any of your numbers are off, and you may also decide to calculate your rate product-by-product as well to find other discrepancy issues.
How To Improve Your Inventory Accuracy
Inventory accuracy rate not looking so hot this year? You may be looking for tips on improvement.
Here are seven strategies that can help you increase your inventory accuracy rate and keep a more accurate count.
Institute cycle counting processes
Cycle counting processes are smaller inventory counts, usually focusing on a single department or category or product at a time.
An ABC inventory analysis—one that breaks products down into A, B, and C groups based on value—is one such example of a cycle counting process.
Because the full inventory audit—counting every single item in your warehouse—usually happens just once a year, instituting cycle counts every month or so can help you keep a closer eye on your actual inventory count, reducing any inaccuracies in the long run.
Maggie Lv, manager at children’s clothing wholesaler Kabeier, shares that her team leverages cycle counting processes to maintain high inventory accuracy.
By regularly counting a subset of inventory items, rather than conducting a full inventory count only once a year, we catch discrepancies early and make necessary adjustments.
This approach allows us to keep our inventory records reliable and up-to-date throughout the year.
Standardize inventory control processes
Inventory control refers to the act of controlling your stock or inventory amounts, optimizing storage to ensure you have enough space for everything you will sell in a given time period, and placing the right orders to keep product properly stocked to fulfill sales.
It’s an important part of inventory management, and standardizing your inventory control processes can play a huge role in improving your inventory accuracy.
If you’re able to have a finger on what inventory is coming in, when, and why, your inventory management process will be better suited for keeping accurate records.
Use barcode and RFID technology
Barcode scanning and RFID technology are both features of real-time inventory systems, a modern approach to inventory management and a great way to improve accuracy in your inventory counts.
Robert Khachatryan, CEO of Freight Right Global Logistics, shares:
One effective strategy for improving inventory accuracy is the implementation of barcode and RFID technology.
These technologies automate the tracking of inventory, reducing human error and providing real-time visibility into stock levels.”
He continues, “With RFID, for example, businesses can track items throughout the supply chain, from warehouse to delivery, ensuring that inventory data is always up-to-date and accurate. This leads to more precise inventory counts, improved order fulfillment, and better decision-making based on real-time data.”
Conduct regular audits
As we’ve mentioned, a full audit tends to occur annually, while cycle counts might occur more often.
However, if you find that your company is struggling to improve its inventory accuracy rate, it may behoove your team to conduct full audits more frequently.
Yes, it can cause disruptions.
You’ll have to run the numbers to determine if a brief pause in operations is a better option than the lost sales or inventory from inaccurate counts.
Train your staff
Another way to improve inventory management as a whole—plus your accuracy rate—is to make sure you’re spending enough time training your staff so that they know how to properly manage, count, and handle inventory.
Optimize your onboarding process so that everyone who works with your inventory is fully trained, reducing the chances that stock can get lost or mishandled.
Create clear communication channels
Part of training and improving staffing means creating clear communication channels.
This makes it so that anyone involved in inventory stocking, warehouse management, shipping, etc., knows exactly who to talk to about potential issues and who’s in charge of what areas.
Having these communication channels outlined plainly helps keep things from falling into the cracks over long periods of time, which can lead to even lower inventory accuracy.
Implement robust inventory management software
Finally, implement the right inventory management software so that all of these processes can be managed from a bird’s eye view, ensuring the right automations are in place, spreadsheets aren’t as relied on, and inventory tracking is optimized.
Browse key inventory management features to pick out the ones that are most important to you. Features like:
- SKU tracking to avoid inventory shrinkage
- Product categorization for cycle counting
- Low stock alerts so you can meet customer demand
- Auto-buying new stock
- Order management and fulfillment
Journaling Supplies’ Chen explains why this is so important, saying
Such software integrates real-time tracking, automated updates, and comprehensive reporting, which helps minimize discrepancies and ensures that inventory levels are consistently accurate.
By centralizing inventory data and automating processes, businesses can reduce errors and streamline their operations.
Being that we love thinking about and talking about software at The Ecomm Manager, you can bet we have thoughts on the best inventory management systems.
Take a peek at our top 10 picks here:
Final Thoughts
Improving inventory accuracy should be a major priority of any ecommerce company.
Ensuring you have as accurate of a count as possible of your in-stock products helps avoid revenue loss and dissatisfied customers. Choosing the right inventory management tool can help.
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Inventory Accuracy FAQs
To wrap things up, let’s briefly answer a few questions that may be jangling about your head.
What is the average inventory accuracy rate?
According to the most recent data, the average inventory accuracy rate sits around 65%. However, this is extremely low, and you should be aiming for a much higher number.
What is a good inventory accuracy rate?
A good inventory accuracy rate is as close to 100% as possible—though one study found the median sits at 99.6% and best-in-class companies see levels as high as 99.98%.
How often should you do cycle counts?
You should be doing cycle counts as often as possible. While a full physical inventory count may only occur once per year, your cycle counting program should include counts every month or at the very least every quarter.
What are the common causes of poor inventory accuracy?
A poor inventory or warehouse management system (WMS) can lead to an inaccurate inventory report. Misplaced or lost inventory, outdated technology, poorly trained staff, and poor electronic record keeping can also be causes of inaccurate inventory records.
