Why Monthly Inventory? Optimising Shrinkage & Cost of Goods

Why You Need a Monthly Inventory – How to Optimise Cost of Goods, Shrinkage and Breakage

In hospitality and hotels, every euro counts. Anyone who does not have their stock levels under control risks high losses – often unnoticed. Shrinkage, breakage and incorrectly calculated cost of goods in particular remain invisible cost drivers without regular checks. This is precisely why monthly inventory is an indispensable tool for every professional business.

In this blog you will learn:

• Why a monthly inventory is the key to better cost control

• How you can identify shrinkage and breakage with simple calculations

• Which specific measures protect your profit

Why Is a Monthly Inventory So Important?

The annual inventory is mandatory – but it is not enough. A monthly stocktake gives you an ongoing overview of goods flows, stock levels and potential losses. And the best part: you identify early on where money is being lost and can take corrective action.

Your benefits:

• Control of cost of goods
• Early detection of shrinkage and breakage
• Better purchasing conditions through predictability
• Preparation for tax and operational audits

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Calculating Cost of Goods Professionally

Cost of goods shows how much stock you consumed in a month – and what it cost. The formula:

Cost of goods = Opening stock + Purchases – Closing stock

A practical example:

• Opening stock: €7,000
• Purchases: €28,000
• Closing stock: €9,000
• Revenue: €100,000

Cost of goods = €26,000

Cost of goods as % = 26%

Whether 26% is good or bad depends on the concept – fine dining, casual or takeaway each have different target values. Blanket benchmarks are therefore of limited use.

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Why Check Monthly?

‍Through monthly comparison, you identify variances early – and can take targeted corrective action: for example by adjusting purchase quantities, prices or storage processes.

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Finally Making Shrinkage and Breakage Visible

Shrinkage arises from theft, incorrect portioning or spoilage. Breakage – such as broken bottles – is everyday life in hospitality. Yet both are often not documented and thus remain an invisible cost factor.

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How to Calculate It:

Shrinkage = Difference between actual consumption (per inventory) and theoretical consumption (per POS/sales figures)

Shrinkage rate = (Shrinkage / Cost of goods) × 100

Is your shrinkage rate above 3%? Then you should urgently investigate what is going wrong. DEHOGA cites 3% as the industry benchmark – for beverages it can be even less.

To calculate shrinkage correctly, you need:

• Actual stock movements (e.g. recorded with BarBrain)
• Sales figures from the POS
• For food, additionally recipes or portion sizes

Example with beer bottles:

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Opening stock: 140 bottles
Purchases: 460 bottles
Closing stock: 128 bottles
Sales per POS: 427 bottles
Actual consumption per inventory (cost of goods): 140 + 460 – 128 = 472 bottles
Shrinkage: 427 (sold) – 472 (consumed) = –45 bottles
Shrinkage rate: (45 / 472) × 100 ≈ 9.5%

Shrinkage of over 9% is well above the usual benchmark (approx. 3%) and should definitely be investigated – possible causes: breakage, theft, incorrect dispensing or booking errors.
Only through a combination of POS data and precise inventory can shrinkage be identified at all – particularly easy to measure with bottled goods.

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Breakage Formula:

Breakage = Value of damaged goods / Cost of goods

Tip: Document breakage directly digitally – with tools like BarBrain you have the figures to hand at any time.

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What Insights Does This Give You Monthly?

• You identify trends – are losses rising for certain products?
• You can adjust purchasing processes – better planning means cheaper buying.
• You protect yourself against back-payments during tax audits – complete documentation is mandatory.

Particularly during operational audits, the tax authorities demand detailed records. Discrepancies in cost of goods or shrinkage quickly lead to costly estimated assessments.

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Specific Measures When Shrinkage and Breakage Are Too High

1. Improve storage structure: Clear labelling and designated storage locations reduce errors.
2. Train staff: Incorrect portioning costs real money.
3. Better security measures: Video surveillance or double-checking for high-value items.
4. Use digital tools: BarBrain makes the process faster, more accurate and delivers data at the press of a button.

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Conclusion: Monthly Inventory = More Profit and Less Hassle

Anyone who consistently carries out their monthly inventory not only has better control over cost of goods but actively reduces shrinkage and breakage. You obtain real data on your business’s performance and can take targeted measures before losses escalate.

Tip: With BarBrain you complete your monthly inventory not only faster but also in a legally compliant and transparent way – perfectly prepared for the next tax audit.