Got shelves full of stock but not sure what it’s all worth?
Knowing how much inventory you’ve actually got left at the end of a sales period, and the value of that stock, is one of the most useful (and most overlooked) bits of eCommerce housekeeping. It’s an essential part of making your eCommerce fulfilment efficient, especially if you’re trying to reduce excess stock, improve cash flow, or scale up your business.
What is ending inventory?
Ending inventory is the total value of products you still have in stock at the end of a set period, whether that’s the end of the month, quarter or financial year. This value is also known as the closing inventory figure.
For eCommerce businesses, this number feeds directly into your cost of goods sold (COGS) calculations, which affects your gross profit. If you’re planning ahead and ordering new stock, running promotions, or trying to reduce excess, this number gives you the clearest starting point.
How to Calculate Ending Inventory
Here’s the good news: you don’t need to be a maths whizz to work out your ending inventory. Most eCommerce businesses use a simple closing inventory formula:
Ending Inventory = Beginning Inventory + Purchases – Cost of Goods Sold (COGS)
Let’s break that down:
- Beginning Inventory: What you had in stock at the start.
- Purchases: Any new stock you bought during that time.
- COGS: The total cost of everything you actually sold.
So you’re essentially taking what you started with, adding anything new you bought, and then subtracting the cost of goods that you’ve sold.
If you’re unsure of your current COGS, you can use the Gross Profit Method to give you an estimate to work from.
Example of Using the Ending Inventory Formula for an Online Store
Let’s say over the past month:
Beginning Inventory: £10,000
Purchases: £5,000
COGS: £9,000
Using the formula for ending inventory:
£10,000 + £5,000 – £9,000 = £6,000
So, your ending inventory is £6,000.
When to Use the Gross Profit Method to Estimate Inventory Value
The gross profit method is a quick way to calculate your ending inventory when you don’t have complete inventory records or can’t do a full stock count. It’s often used for interim reporting or in situations where your physical inventory data isn’t available, like after a stock loss (i.e a fire), a system issue, or if you’re still setting up proper tracking.
Ending Inventory = Beginning Inventory + Purchases – Estimated COGS
Here’s how it works:
- Estimate your gross profit margin based on past performance.
- Apply that margin to your net sales to estimate the cost of goods sold (COGS).
- Plug that COGS estimate into the standard formula to calculate ending inventory.
This method is handy in a pinch, but it’s still only an estimate, so it won’t give you the true value of the inventory remaining at the end of the period. So while it can help spot red flags or fill in the gaps during reporting, it’s not something to rely on for year-end accounts or detailed financial decisions.
It’s best to do a proper physical count as soon as you can and re-run the figures with the regular ending inventory formula.
Why Ending Inventory Calculations Matter for eCommerce Owners
Keeping an eye on your ending inventory gives you real insight into how your business is performing.
Track Your Profitability
As your ending inventory directly affects how you calculate your gross profit, if the numbers or inventory data are off, your margins might look healthier than they really are, or worse, you could be underpricing without realising it.
Pinpoint What Stock is Tying Up Cash
Every unsold item sitting in your warehouse adds to the total value of goods you’re holding, which is cash tied up in stock. Tracking what’s not selling helps you calculate stock turnover, reassess the value of your inventory, and decide whether to clear it, bundle it, or rethink your approach to goods available for sale.
Forecast Better
Accurate inventory tracking gives you a clearer picture of what’s actually happening with your stock. By keeping tabs on inventory items and recording the physical inventory regularly, you can reduce inventory shrinkage, understand what inventory remains at the end of each period, and avoid excess inventory building up.
If you run a subscription model, it’s especially helpful to manage your inventory for subscription products so you can meet recurring demand without overstocking or missing shipments.
Keeps Your Accountant Happy (& Your Tax Bill Accurate)
At the end of an accounting period, ending inventory will affect your taxable profit and balance sheet values, so it needs to be accurate for your reports to HMRC and Companies House. If it’s wrong, you might end up with a fine or an unnecessary tax bill.
Manual vs Automated Ending Inventory Calculations
When you’re starting out, it’s tempting to keep things simple with spreadsheets or the back end of your eCommerce platform. And for a while, that might be enough. But as orders pick up and product lines grow, manual inventory tracking can quickly turn into a time-consuming headache.
Manual Inventory Tracking
Manual tracking usually means logging stock in a spreadsheet, or sometimes even with pen and paper. It’s simple, cheap, and easy to set up, so many small businesses start here.
To keep everything up to date, you’ll need to do regular physical stock counts, and every sale or return must be logged manually.
The downside? It’s easy to make mistakes. If you forget to update your sheet after a busy day, your numbers will quickly go out of sync, and you might sell stock you don’t actually have.
Manual tracking can work fine for businesses with just a few products and a low order volume, but it’s not built to scale. As your range grows or you start selling across multiple platforms, staying on top of everything becomes harder without errors slipping in.
Automated Inventory Management Software
Automated tracking uses inventory management software to keep tabs on your stock in real time. It connects to your website, marketplaces like Amazon or eBay, and even your point of sale, so every sale, return, or restock is instantly recorded.
You’ll get live updates on inventory levels without needing to check shelves or tally spreadsheets. Most automated ecommerce fulfilment systems can send low-stock alerts, help you forecast demand, and even reorder when levels drop below a certain point.
Automation also massively reduces the risk of human error, so there’s no chance of accidentally overselling or forgetting to update stock after a return.
And if you’re working with a 3PL like Delta Fulfilment? You’ll get full visibility of your remaining inventory across all channels, with updates you can trust.
Ending Inventory Methods You May Come Across
If you’re using basic inventory tracking, your ending inventory is usually based on the actual cost of each product. But as your business grows or your accountant gets more involved(!), you might come across different methods for inventory valuation.
These methods don’t change the physical stock you have, but they do affect the value you assign to it, which in turn impacts your profit figures and tax reporting.
Here are the most common inventory valuation methods:
| Method | What It Means |
| FIFO (First-In, First-Out) | Assumes the oldest stock (first in) is sold first. Ending inventory is based on the cost of the most recent purchases. Usually shows higher profits when prices are rising. |
| LIFO (Last-In, First-Out) | Assumes the newest stock is sold first. Ending inventory is based on older, potentially cheaper stock. Not typically used in the UK, but you might hear about it. |
| Weighted Average Cost | Spreads the total cost of goods evenly across all units. Ending inventory is valued at an average cost per item, regardless of when they were purchased. |
Most eCommerce businesses in the UK use FIFO or Weighted Average, depending on the software or accounting method used.
If you’re not sure which one applies to you, or you’re wondering if you should be using one of them, it’s worth having a quick chat with your accountant or your 3PL partner.
Common Closing Inventory Count Mistakes eCommerce Owners Make
Even if you have a good system, inventory counts can still go off track. Here are a few common mistakes we see time and time again:
Guessing or Estimating Inventory Turnover
Tempting as it is just to eyeball what’s on the shelves, relying on rough estimates instead of doing a proper physical inventory count is a quick way to throw off your inventory records. It becomes harder to track inventory accurately, and you might think your ending inventory is higher than it actually is, which can lead to mistakes in COGS and margins that are off. No matter the method you choose for valuation, always start with accurate data to keep your records reliable.
Not Counting Returns or Damaged Stock
Returned items and damaged finished goods might still be sitting in your warehouse, but they shouldn’t be included when you calculate the ending inventory. Including unsellable items can inflate the value of your ending inventory and skew your average inventory figures. To keep your inventory available and accurate, track these items separately so only sellable stock is counted in your totals.
Only Doing a Stock Count Once a Year
Annual stock takes might keep your accountant happy, but they’re too infrequent for operational decision-making. Regular (monthly or even weekly) counts help you spot issues early, like theft, supplier errors, or mispicks.
Using Different Inventory Valuation Methods
If your eCommerce platform uses FIFO but your accountant uses the average cost method, you’ll end up with conflicting figures. Aligning your valuation method across platforms avoids messy reconciliation later.
No Clear Process for Inventory Control
Things get missed if different people pack, count, and restock without a shared process or system. Set clear guidelines and ideally, use a system that automatically tracks all activity.
Need help with inventory management?
If calculating ending inventory feels like one job too many, or if you’ve ever found yourself buried in spreadsheets, wondering where all your stock (and profit) has gone, it might be time to bring in some support.
At Delta Fulfilment, we help eCommerce businesses of all sizes take control of their inventory. Whether you’re fulfilling orders yourself, using Amazon, or running a subscription model, we’ll help you track stock in real time, avoid overselling, and make better decisions based on accurate numbers.
Want fewer stock headaches and more time to grow your business? Get a quote today and let’s sort your inventory management properly.