In that case, you'd be working with more than two data points like we were above. All you have to do is change the number of data points in the formula and match that number to the one you divide by.įor example, let's say you want to calculate your average amount of inventory for the year’s first quarter. You can use it to average your company’s inventory for a month, a quarter, or any other time. Calculating Average Inventory for a Quarter But it can get a little more complicated. But if you are trying to reduce inventory costs to below $5,000, you can see that you have a ways to go still.

If your company has a goal to keep $6,000 worth of product on hand so you don’t run out, you can see that you need to order a bit more. So, your average monthly inventory was $5,750. To calculate your average inventory at the end of the month, you would do the following: Then, over the course of the month, you sell some items and buy a few more, so your ending inventory is $6,500. You simply add up the value of your beginning inventory to the value of your ending inventory and then divide that number by two.įor example, let's say you have a small online store, and you start the month with $5,000 worth of inventory. Now that we’re on the same page with what each part of the equation means, let’s jump back into finding your average inventory.

The formula for it looks like this: Ending inventory = Beginning Inventory + Purchased Inventory - COGS Ending inventory: It’s that beginning inventory you just found, plus any inventory you purchased, minus the cost of goods sold (COGS).So if you’re calculating for this month, you’d want to start with where you ended last month. Beginning inventory: The ending inventory of your previous time period.Now before we dive into the actual math, it’s important to be working with the right numbers. So you’ve decided this is the right metric for you–but how, exactly, do you find it? You can use the average inventory formula: Average Inventory = (Beginning Inventory + Ending Inventory) / 2 You can also plug it into other formulas to figure out how fast your inventory is turning over and how quickly it’s being sold, among other things. It can help you quickly gauge inventory levels. Who Should Use the Average Inventory Formula?Ĭompanies of all shapes and sizes can use this formula. Decide on when to do sales or promotions.Figure out how much inventory to order next.In a nutshell, you add those two numbers together and divide them by the number of periods or months you’re calculating for. The average inventory formula uses your beginning and ending inventory levels to average out your inventory numbers. Here we'll show you how to calculate your average inventory and put it to work at your company. That way, you can figure out if you’re ordering way too much, or way too little when it comes time to get more stock.

This inventory management method allows you to track your average inventory level over a specific period of time. To help you find the perfect balance, you can use the average inventory formula. But run out of product, and you’ll lose sales and damage your reputation. Keep too much inventory on hand, and you risk having items sitting on the shelf that you can’t sell. How you manage your inventory can make or break your business.

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