Inventory shrinkage: meaning, formula and how to reduce it
By mise · Updated September 29, 2026
Quick answer: inventory shrinkage is the difference between the stock you should have on record and what you physically count. Shrinkage % = (recorded inventory − counted inventory) ÷ recorded inventory × 100 (retailers often divide by sales). Causes: theft, unrecorded waste, receiving and counting errors. Around 1.5–2% of sales is typical in retail.
Shrinkage is the part of your stock that disappears without an explanation. Measuring it per product turns "we lose stuff" into a short list.
The formula
Main causes
| Cause | Sign | Fix |
|---|---|---|
| Theft | High-value, small items; losses on certain shifts | Locked storage, weekly cycle counts, shift reports |
| Unrecorded waste | Perishables | Waste log |
| Receiving errors | Gaps right after deliveries | Check against invoice, count cases |
| Over-pouring / portioning | Bar and kitchen usage above sales | Jiggers, scales, recipe cards |
| Counting errors | Swings up and down | Same units, scanning instead of typing |
Finding it
Compare expected and counted stock per product, sorted by dollar value. Cycle count the top items weekly. In mise, closing a count shows exactly this: expected vs counted, per product, in units and dollars.
Point the camera and the product comes up complete: name, brand, category, size and photo — the mise AI finds it from the barcode or a photo. 7-day free trial, no card.
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Frequently asked questions
What is inventory shrinkage?
Stock that is on record but not on the shelf: lost to theft, waste, damage or errors.
How do you calculate shrinkage?
(Recorded inventory − counted inventory) ÷ recorded inventory × 100, or divided by sales for a retail shrink rate.
What is a normal shrinkage rate?
Around 1.5–2% of sales in retail. In bars, liquor variance above 3–5% per product deserves a look.