Average inventory is the mean value of your inventory over a specific period. It gives a more stable and realistic view of your inventory levels by smoothing out fluctuations:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Step-by-Step Process:
- Identify your beginning inventory (inventory at the start of the period)
- Determine your ending inventory (inventory at the end of the period)
- Add the two values together
4. Divide the total by 2
For more extended periods (e.g., monthly over a year), you can average multiple inventory points:
Average Inventory = (Inventory Month 1 + Inventory Month 2 + … + Inventory Month n) / n
Why Does the Average Inventory Calculator Matter to Small Business Owners?
1. Measuring Inventory Turnover Efficiency
Understanding average inventory is essential for calculating your inventory turnover ratio, which tells you how efficiently your business sells and replenishes inventory over time. High turnover suggests strong sales or lean inventory management, but you may risk frequent stockouts if it’s too high.
2. Supporting Cash Flow Management
Inventory is one of the most significant investments for product-based businesses, and average inventory helps you monitor how much of your working capital is consistently tied up in stock.
If your average inventory is high relative to your sales, your cash is sitting on the shelf instead of being used for marketing, payroll, or expansion.
Conversely, tracking a low average inventory might reveal a lean operation, but it may also signal that you’re frequently running out of stock and losing sales.
3. Enabling Smarter Financial Planning and Reporting
Lenders, investors, and financial advisors often look at average inventory when assessing your business’s operational health.
It’s a key component in many financial ratios, such as inventory turnover, days inventory outstanding (DIO), and working capital analysis. These metrics help paint a picture of how efficiently your business manages its assets.
For example, if you’re applying for a loan or seeking investment, showing that you manage your inventory effectively with a healthy average relative to your sales can improve your credibility and strengthen your financial story.
4. Improving Inventory Management and Reordering Decisions
Using average inventory data helps you make more informed decisions about when and how much to reorder.
It offers a reliable baseline to understand typical stock levels over time, smoothing out short-term fluctuations due to promotions, seasonality, or one-off large purchases.
It helps address some of the common inventory management challenges retailers face, such as better setting minimum and maximum stock thresholds, avoiding overordering, and reducing the chances of holding obsolete inventory.
Inventory management a headache?
KORONA POS makes stock control easy. Automate tasks, generate custom reports, and learn how you can start improving your business.
Average Inventory Calculator Tools: POS Systems & Spreadsheets
1. POS (Point of Sale) Systems
POS systems don’t just handle transactions; many, like KORONA POS, come with built-in inventory management software to automate and streamline calculating average inventory.
Why Use a POS System:
- Real-time inventory tracking: Every sale, return, or restock instantly reflects your inventory levels, providing accurate data without manual entry.
- Historical inventory records: You can pull monthly or weekly reports on inventory levels to calculate average inventory over time.
- Sales integration: Because POS systems track sales and COGS, they allow you to calculate key ratios (like turnover) directly, without needing multiple tools.
- Error reduction: Automating your inventory tracking significantly reduces errors from manual logging, especially in high-volume retail environments.
Speak with a product specialist and learn how KORONA POS can power your business.
2. Spreadsheets (Excel or Google Sheets)
Spreadsheets are a flexible, low-cost option for small business owners, especially if you’re just starting or prefer hands-on control over your inventory data. You can use spreadsheets by maintaining a monthly inventory log with columns for date, inventory at cost, units on hand,
and adjustments (returns, shrinkage).
Why Use Spreadsheets:
- Complete control over data and formulas: You can tailor your calculations to suit your business model (e.g., adjusting for seasonality, returns, or different product types).
- Custom reporting: Create your retail store performance dashboards and metrics, such as average inventory, COGS, turnover, or DIO.
- Scenario modeling: Easily simulate “what if” situations (e.g., what happens if inventory increases by 15%?) to support planning and forecasting.
- Low or no cost: Google Sheets is free, and most businesses already have access to Excel.
Pick KORONA POS for a More Accurate Inventory Calculator
When selecting an inventory calculator or management system, it’s important to consider key features:
- Ease of Use – The interface should be intuitive and not require advanced training.
- System Integration – It should sync with your POS, accounting tools, and eCommerce platforms.
- Scalability – As your business grows, your tool should grow with you.
- Reporting Capabilities – The software should offer robust reporting tools that help with audits, budgeting, and strategic planning.
KORONA POS checks all these boxes. It offers a robust suite of inventory management features designed explicitly for retail verticals such as liquor stores, convenience stores, vape shops, and CBD retailers. It’s one of the best inventory management software for small businesses.
- KORONA POS is one of the most reliable and user-friendly POS systems for small and medium-sized retailers.
- Its built-in inventory management tools are designed to handle multi-location stock, automatic reorder points, and detailed inventory and sales analytics.
- With customizable reports, you can effortlessly view average inventory trends and turnover, segmented by product, category, or store.
- KORONA is cloud-based, giving you access to real-time inventory data from anywhere perfect for business owners on the go.
Whether you choose to use software, Excel, or manual methods, the key is to ensure that your inventory data is current and correct. And if you’re looking for a reliable, scalable solution that does more than just calculate averages, KORONA POS is a smart choice.
It offers inventory management features tailored to your industry. Click below to book a free demo with KORONA POS today and see how it can transform your inventory management strategy.
