This post was contributed by Stitch Labs, providers of the must-have app for small businesses to manage inventory, orders, customers and more.

Inventory management is the process of tracking the size and scope of your product. In everyday terms, it’s the thinking and organization surrounding your how much inventory and where it is.

Entire college courses are devoted to inventory management, but there are three things every small business person must know about inventory management:

#1 Why Inventory Management is Important

Good inventory management helps you answer important questions about your inventory that need to be answered so you can make informed business decisions. Examples of these questions include:

  • Am I keeping enough inventory on hand?
  • Are any of my products overpriced?
  • Are any expensive items tying up my cash flow?
  • Is now the right time to order another run of a popular item?
  • Am I losing units from theft or damage?

As you practice good inventory management, you’ll reap important data about your product that will be your best guide to answering questions like these.

Without tracking and organization, you’re flying blind (something Shoeboxed definitely understands). Making decisions without good inventory tracking results in problems like overstocking, overselling, poor pricing, and tying up cash flow.

# 2 How to Calculate COGS (Cost of Goods Sold)

You are probably aware of COGS from reporting inventory on taxes. This acronym, which stands for cost of goods sold, is the amount you spend to get a product into a sellable state and put it on your shelf.

Knowing your COGS has clear benefits in decision making:

  • You can easily see how your pricing compares to what you’re spending on a unit. COGS encompasses the entire range of dollars you’re spending to create and stock a unit instead of just the per unit price you pay a supplier.
  • COGS can also lessen your tax burden at tax season and help you plan future expenditures with your accountant.

At a minimum, you will need to calculate COGS once per year for taxes. However, the benefits listed above make a case for tracking this metric throughout the year. Calculating COGS manually with a pen and paper is a burdensome process. However, good inventory management software calculates COGS for you and make the information available whenever you need it.

#3 Good Software Makes Inventory Management Way Easier

When your business is small, it can be easy to keep track of several product variants in a notebook or a spreadsheet. However, you’ll quickly outgrow these as you expand your business.

When you sell on more than online channel or also sell products in person at trade shows, tracking and updating unit counts is time consuming. Good inventory management software can automate this process and keep accurate counts for you.

For example, Stitch integrates with both Amazon Marketplace and Shopify. If a product sells on Amazon, Stitch will automatically reduce the quantity available on Shopify. Not only does this save time and ensure accuracy, it also prevents unhappy customers due to overselling.

Inventory management software will also organize your data and provide meaningful reports that make it easier to make decisions based on the big picture. Plus, you can readily export this data for your accountant and save yourself the hassle of pulling together spreadsheets, invoices, and receipts.

Finally, good inventory management software automates invoices and line sheets, producing well-designed documents from your inventory data at the click of the button. Not only does this save you the time of transcribing data into a template, it adds that professional touch of consistent graphic design.


Inventory management is a daunting topic for many small business owners. However, key concepts, like COGS, provide important inventory information for making good decisions. While it may be easy to track inventory by hand when your stock is small, inventory management software offers many features that grow with your business and afford you time to grow it.

photo credit: