Inventory shrinkage is the stock that disappears between what your records say you have and what is actually on the shelf. It comes straight off your profit, and on thin margins it hurts badly. This guide explains what causes shrinkage and how to reduce it.
What is inventory shrinkage?
Shrinkage is the loss of stock from causes other than sales — the gap between recorded inventory and the physical count. Because that missing stock was already paid for, every unit of shrinkage is pure lost profit.
What causes shrinkage
| Cause | Examples |
|---|---|
| External theft | Shoplifting |
| Employee theft | Stolen cash or stock, refund fraud |
| Administrative error | Miscounts, pricing and receiving mistakes |
| Supplier fraud/error | Short deliveries not caught |
| Damage & waste | Broken, spoiled or expired goods |
How to measure shrinkage
Shrinkage rate = (Recorded stock value − Actual stock value) ÷ Sales × 100
You cannot reduce what you do not measure — so count regularly and calculate the rate to see if it is improving.
How to reduce shrinkage
- Count and reconcile regularly. Frequent stock reconciliation and stocktakes catch losses early.
- Tighten receiving. Check every delivery against the purchase order so short shipments are caught.
- Control staff access and refunds. Limit who can void, discount or refund — see preventing employee theft.
- Deter external theft with layout, visibility and security.
- Reduce damage and waste with careful handling and expiry rotation.
See shrinkage before it grows
RushFlow keeps live stock records and makes counts and reconciliation easy, so discrepancies show up quickly — while you can still find the cause and stop the leak.