---
title: "Inventory shrinkage: definition and formula"
description: "Stock you paid for and cannot sell: damaged, expired, lost or miscounted. Usually costed as a small percentage on top of each unit's cost."
url: https://offersuite.io/glossary/inventory-shrinkage
updated: 2026-10-13
---

# Inventory shrinkage

Stock you paid for and cannot sell: damaged, expired, lost or miscounted. Usually costed as a small percentage on top of each unit's cost.

## In plain words

Inventory shrinkage is the stock that disappears between buying it and selling it. Units break in the warehouse, go out of date, get lost or miscounted, or are written off as samples.

You paid for those units, and the units you do sell have to carry them. The usual way to cost shrinkage is a percentage of the product cost, added to every order. For products with a shelf life it is far from a rounding error.

## Formula

- Shrinkage rate = cost of units lost ÷ cost of units bought
- Shrinkage per order = the order's product cost × shrinkage rate

## Worked example

At a 2% shrinkage rate, the engine adds $0.24 to the coffee bag's order: 2% of its $12.00 unit cost. The order keeps $15.12.

On three bags the charge is $0.72. It follows the product cost in the box and ignores the price, so a discount does not shrink it.

### The example order

A $40.00 bag of coffee, shipped free, every cost counted

Revenue $40.00 to contribution margin $15.36 (38.4%)

Revenue

$40.00

Cost of goods

−$12.00

Pick and pack

−$1.18

Packaging

−$0.50

Shipping label

−$7.50

Card fee per order

−$0.30

Refunds

−$2.00

Card processing

−$1.16

Contribution margin

$15.36

2 declared kinds cost nothing on this option

Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.

## Shrinkage is not refunds

A refund follows a sale: the unit shipped and the money came back. Shrinkage is stock that never produced a sale at all. They have different causes and different fixes, and a refund reserve does not cover shrinkage.

## Using it

Measure it from stock counts: what you bought, less what you sold, less what is on the shelf. Do it per product line, because a perishable product and a mug shrink at very different rates. If your supplier's cost or your landed cost already includes an allowance for breakage, leave shrinkage out, or you will count it twice.

## In Offer Suite

In Offer Suite's engine a percentage cost can be a share of the order's revenue with shipping, of its product revenue, or of its unit cost. Shrinkage and scrap are entered as a percentage of unit cost.

Source: Offer Suite's margin engine and its cost grains.

## Related

- [Glossary **Glossary of offer economics** The terms behind offer profit, defined plainly with their formulas and a worked number: contribution margin, profit per visitor, break-even lift and more.](https://offersuite.io/glossary)
- [Calculator **Bundle pricing calculator: shipping, subscriptions** Price a bundle against a single unit, one-time and subscribed, with the shipping and pick costs it saves, and the conversion it can lose and still earn as much.](https://offersuite.io/calculators/bundle-pricing)
- [Glossary **Cost of goods sold (COGS): definition and formula** What the units you sold cost you to make or buy. In an offer calculation it is charged per unit, gifts included, at the cost in effect on the order's date.](https://offersuite.io/glossary/cost-of-goods-sold)
- [Glossary **Landed cost: definition, formula and example** A unit's full cost on your shelf: the supplier's price plus inbound freight, duties and brokerage. The unit cost an offer should be priced on.](https://offersuite.io/glossary/landed-cost)
- [Glossary **Cost grain: definition, formula and example** The level a cost is charged at: per unit, per parcel, per order or as a share of revenue. Counting a cost at the wrong grain misprices every bundle.](https://offersuite.io/glossary/cost-grain)
- [Glossary **Refund reserve: definition, formula and example** A share of revenue set aside, in a forecast, for the refunds that will come. It turns an unknown future cost into a rate you can price an offer against.](https://offersuite.io/glossary/refund-reserve)