Your Complete Guide to Inventory Counting: Methods, Best Practices, and Tools for Success

You have inventory – but do you know precisely how much you have? 

It can be tempting for ecommerce brands to think that, as long as you have enough units to meet demand, the exact count doesn’t matter. But accurate inventory counts are incredibly important, as they influence decision-making, sales, accounting, replenishment, and other key aspects of your ecommerce operations. 

In this article, we’ll dive deep into what inventory counting is, review some counting methods you can use, and explore best practices that will improve the inventory counting process.  

What is inventory counting? 

Inventory counting is almost always a structured process, beginning with grouping inventory, counting each individual unit of every SKU, and recording the numbers (either manually on paper and pencil or scanning product barcodes to update records in a cloud-based inventory management system).  

This process helps you verify whether your inventory records match your actual physical stock and identify any discrepancies in the data. 

Why is inventory counting important? 

Inventory counting may seem like a trivial or menial task, but it is absolutely worthwhile. This is because inventory counting helps you: 

• Detect discrepancies in your inventory records – Inventory counting is a key step in the inventory reconciliation process, as it reveals any differences between your current inventory data and your actual physical inventory. This helps you maintain accurate inventory records, which in turn facilitate better decision-making on your part. 

• Replenish stock levels correctly – When you know exactly how much inventory have on hand, you can reorder just the right amount of stock to meet customer demand without over- or understocking. You will also have a better idea of when you’ll need to replenish, which helps you avoid costly stockouts.   

• Avoid overselling – If you think you have more inventory than you actually do, you run the risk of selling stock you don’t have, creating backorders, backlogs,  cancellations, and disgruntled customers. Counting inventory regularly gives you accurate data to work with, so you know when to when to flag items as out of stock.  

When should you run an inventory count? 

Inventory counting schedules vary for every business. Depending on the size of your operations and the types of products you sell, you may need to count your inventory monthly, quarterly, bi-annually, or even annually. Ideally, you’ll want to time your inventory counting with your inventory accounting schedule. 

Additionally, you may need to arrange a counting to coincide with major events (such as an inventory write-off). Companies will also want to consider a thorough inventory counting if they regularly experience issues with inventory discrepancies, stockouts, shrinkages, and excess inventory. 

4 types of inventory counting methods 

While you might think of inventory counting as a straightforward process, but there are several different approaches to it – and which approach is best for your business depends on your brand’s resources, time availability, and tools.  

Here are some of the most common types of inventory counting methods to consider for your brand. 

1. Full periodic inventory count 

A full periodic inventory count is a periodic inventory counting method where you count entire physical inventory in one sitting, so you can get a comprehensive and accurate overview of your inventory stock.  

Since a full inventory count is a time-consuming process, it’s typically performed annually or bi-annually to avoid disrupting business operations. Even then, this type of physical inventory counting process is highly labor intensive, often requiring companies to dedicate most of their workforce for it. Some may even need to bring in temporary staff to help with the count. 

For small businesses in particular, this can put a strain on their operations. Seasonal businesses may also be at a disadvantage, as they’ll need to strategically time their counts to be during slower months, which may not always coincide with their inventory replenishment schedules. 

2. Cycle count 

Inventory cycle counting is a popular alternative to a full inventory count, as it involves counting small batches of inventory on a regular basis. Inventory is divided into groups based on location (i.e., one warehouse aisle) or type (i.e., all clothing SKUs), and counts are performed regularly (usually daily or weekly) for a specific group at a time. 

This allows for a more efficient inventory counting process, as businesses don’t need to shut down their entire operation during the count. Moreover, it allows them to nip issues and discrepancies in the bud, since the counts are performed regularly instead of at the end of an entire fiscal year. 

3. Perpetual count 

While some brands prefer full counts and cycle counts that take place once in a while, other brands want to keep an ongoing, continuous tally of inventory that’s constantly updated.  

A perpetual inventory system involves continuously updating your inventory count according to the latest transactions, so your inventory data is automatically updated whenever a sale or purchase happens. In other words, your inventory count is performed in real-time as items are added through receiving or subtracted through sales and order fulfillment. 

This is one of the most efficient and accurate inventory counting methods. However, it requires sophisticated technology and significant investment in tools like RFID tags, barcode scanners, and mobile devices. These tools need to work seamlessly to ensure that perpetual inventory counting functions as intended. 

4. ABC inventory counting 

ABC counting is a cycle counting process used alongside the ABC inventory segmentation method. Inventory items are divided into A, B, and C categories based on value or sales frequency. Category A items have the highest value or turnover and are counted most frequently. Meanwhile, category C items consist of items with the lowest value or turnover and are counted least frequently. 

This process allows businesses to focus their inventory counts on high-value products or SKU items that are most susceptible to change due to high turnover.

Best practices for efficient inventory counting 

Because accurate inventory counts are so critical to your ecommerce brand’s success, it’s important to take the time to optimize your counting process (whatever it looks like). Here are a couple of best practices to implement the next time you count your inventory.  

Organize your inventory space 

Having a structured storage system that organizes your inventory makes it easier to count units correctly. Your warehouse setup should: 

• Group each SKU together and store each group in its own distinct location, which makes it easier to count all the units of a single SKU quickly and effectively.  
• Be organized in a way that allows count teams to move quickly from one inventory group to another. 
• Remove any clutter or trash and put away inventory in their designated areas. 
• Arrange inventory items neatly (rather than haphazardly piled on top of each other or shoved together in tight spaces) to prevent counters from accidentally missing units in their count. 
• Place barcodes and labels on the product so that they’re accessible and prominent. 
• Leverage inventory storage solutions that allow you to strategically store items for easy counting and retrieval. 

Leverage inventory and warehouse management technology 

Inventory counting can be a very efficient process, especially if you ditch manual data entry. Manually recording your inventory data (for instance, with paper and a pencil) can be time-consuming and prone to errors; instead, consider implementing inventory management software and warehouse management systems to speed up and streamline the process. 

These systems allow you to automatically record and track your inventory movement, which will update your inventory count in real time, so every transaction that adds or subtracts inventory will be accounted for. This allows you to efficiently update your inventory count in real time. 

Warehouse management systems like ShipBob’s WMS run multiple checks and balances throughout the fulfillment process, ensuring a high level of inventory accuracy. It unifies all your inventory information across multiple touchpoints and supply chain functions, serving as a single source of truth on inventory counts. This reduces the risk of miscounts and ensures that you have the most accurate information on your stock levels. 

“A lot of our products are similar to each other, which could make picking tricky – but ShipBob’s system has built-in checks and balances that make sure that the right new products are getting out to the right customers. This not only minimizes errors and potential complaints, but also results a better customer experience that encourages them to repurchase from us.”

Connor Westby, Co-Founder of NutriPaw 

Use barcodes and RFID tags 

You should also consider using inventory management tools like barcodes and RFID tags to streamline the counting process. These tools allow you to use scanners and sensors to automatically capture inventory data and track movement across the warehouse. 

Barcode scanning simplifies the inventory counting process because it allows count teams to scan items to count them, and automatically update your inventory records in doing so. This reduces the risk of human error and enhances inventory accuracy. In many cases, it even automates some aspects of inventory counting as automatic sensors perpetually capture and update your inventory data throughout the warehouse.   

Common inventory counting challenges (and how to overcome them) 

Counting inventory might sound like a simple task, but it can be surprisingly tricky. Businesses may face several challenges that can create problems in the inventory counting process. Some of the most common issues brands face when inventory counting include: 

Human error and miscounts 

When businesses predominantly rely on manual processes and tools to perform inventory counts, the entire endeavor is highly susceptible to human error. Counting teams could easily miscount items or accidentally input incorrect numbers during data entry. This could lead to inaccurate inventory counts, which create issues further down in the supply chain. 

This also puts brands at a higher risk of unexpected stockouts or even excess inventory. In some cases, it may lead to errors in their financial records, requiring significant work to reconcile. 

As such, it pays off to invest in tools that automate the counting process and facilitate real-time inventory tracking, such as barcode scanners. That way, inventory levels are continuously updated whenever a new transaction takes place, ensuring a higher level of accuracy.  

“ShipBob’s fulfillment is actually more accurate than our in-house fulfillment was! When we were picking and packing orders, around 2% of them would have some sort of quality control issue. ShipBob brought that error rate to essentially zero. We ship thousands of orders, and we’ve almost never had mispicks, incorrect quantities, or anything like that. We’re also saving money because we don’t have to pay to reship products or lose profit on returns, and it’s a better customer experience.”

Charlotte Katona, President of Makesy 

Seasonal surges and stock management 

When businesses receive, store, and ship out a lot of inventory in a short span of time, it’s easy for inventory to get disorganized, lost, or otherwise miscounted in the shuffle. This is especially true for seasonal products, and makes it challenging – but all the more important – for seasonal businesses to count their inventory and manage their SKUs correctly. 

If you sell seasonal items and expect a surge in demand at a particular time, make sure to prepare beforehand so that inventory will be stored, organized, preserved, and counted properly, despite the flurry of activity.  

Resource and staff limitations 

Most inventory counting procedures require huge amounts of labor. Some businesses dedicate a team to perform inventory counts, while others may even need to allocate their entire staff to count their inventory. Staff limitations can significantly set back the process, especially for smaller businesses since they tend to have a smaller workforce. This can create inefficiencies and major operational disruptions. 

Some may even take on temporary staff to help with inventory counts, although this often requires significant investment in training and onboarding (and therefore is not always an option for businesses on a limited budget). 

While you’ll need some headcount to perform a count, it is also possible to greatly streamline the process by leveraging automation. Try investing in automated software and processes to support staff, or implement automated alerts and real-time inventory tracking systems to simplify inventory management and save time.  

Even smaller operations will be able to rely on these solutions for efficient and accurate inventory tracking without the need to amass a huge additional workforce. 

Lose the inventory management headache with ShipBob 

With real-time inventory tracking and powerful inventory management tools, ShipBob enhances counting efficiency and accuracy. 

Track your inventory in real time with ShipBob’s WMS 

ShipBob’s WMS is an all-in-one platform that integrates your order and inventory data from across the supply chain while powering your warehouse operations. It includes multiple checks and balances and real-time tracking as inventory moves through the warehouse, ensuring that you have the most updated inventory data at all times. 

With built-in perpetual inventory counts that update stock levels automatically when inventory is sold, received, fulfilled, shipped, and returned, your brand can achieve unparalleled accuracy and efficiency in the inventory counting process. 

“ShipBob’s WMS has completely transformed our operations. It makes the receiving process very easy and straightforward, and the stowing tag system that’s built into the WMS has been so helpful. We also have a dedicated location for every SKU and corresponding barcodes that pickers scan to update inventory counts in the ShipBob dashboard in real time, which we never had when we were managing inventory through Shopify. Everything is so seamless now, even with thousands of SKUs in our portfolio.”

Tim Poyer, VP of Operations and Logistics at Elwood Clothing  

Simplify inventory counts with automated solutions 

ShipBob’s technology works seamlessly with an inventory scanner system so that your inventory data is automatically captured and updated in your records. Your warehouse staff can scan incoming and outgoing inventory, which will automatically be recorded by the system. 

Maximize inventory accuracy with customizable cycle counts 

The ShipBob WMS supports intelligent cycle counts, with the flexibility to choose a method that works best for your business. You can customize your cycle counts to focus on high-priority inventory categories, and focus on items that are most likely to experience fluctuations in quantity or are most likely to affect your operations. That way, you can ensure a greater level of accuracy for high-value items or products that sell quickly. 

Reduce costs with intelligent inventory distribution 

ShipBob’s Inventory Placement Program enables merchants to strategically optimize their inventory distribution for speed and cost-efficiency. The program lets you send your entire inventory to one hub location, where our proprietary algorithm determines the optimal inventory distribution strategy (based on your business’s actual order data). 

Inventory is then distributed between different fulfillment centers based on factors like demand and historical sales performance. That way, orders are shipped out from the most ideal fulfillment center to reduce cost and improve delivery speeds. This allows you to lower your fulfillment costs as a whole while ensuring optimal stock levels across key locations. 

“The great thing about ShipBob’s Inventory Placement Program (IPP) is that it makes inventory allocation so much easier. Trying to figure out how much of what inventory to send where could be wildly complex for our supply chain managers – but since ShipBob automatically tracks our order and shipping data for us, that data basically tells us our optimal inventory distribution.

We also get automatic reminders notifying us well before inventory levels are getting depleted, so we don’t have to constantly be checking our stock levels. IPP has saved our supply chain team a lot of extra work, and they also feel really supported by ShipBob and know that they can turn to them for help.”

Tyler McCann, Co-Founder of Taste Salud  

ShipBob’s dashboard also delivers real-time inventory counts at all ShipBob fulfillment centers where you store inventory, so you always have visibility into stock levels (without having to be everywhere at once).    

Prevent stockouts and overstock with data-driven forecasting 

Part of efficient inventory counting is maintaining optimal stock levels. With ShipBob’s inventory analytics software, you can get comprehensive insights into your inventory performance, KPIs, and historical sales data. These insights can then be used for accurate demand forecasting to inform your replenishment strategy. 

Not only does this help you avoid expensive stockout costs by timing replenishment correctly, but it also ensures that your warehouse isn’t holding excess stock. This prevents warehouse crowding and disorganized inventory, ensuring a more seamless inventory counting process. 

Moreover, you can use your demand forecasting insights to plan your inventory counts according to your replenishment schedule. That way, you can improve counting efficiency by reducing the need to double count (once before replenishment and once after replenishment). 

“We have over 5,000 SKUs, but that hasn’t been a problem for us in working with ShipBob. Their dashboard gives us visibility to inventory management, which has been excellent. ShipBob’s inventory counts are very accurate to what’s on-hand, and we can always see what we have available there.”

Charlotte Katona, President of Makesy  

For more information on how ShipBob can make inventory counting – and inventory management – easier, click the button below to get in touch. 

Inventory counting FAQs 

Below are answers to the most commonly asked questions about inventory counting.