Tracking, managing, and understanding the costs of the items you sell is one of the most important aspects of running a successful business.

Seeing how your margins change over time allows you to continually make improvements to pricing and merchandising while keeping an eye on the bottom line.

We’re excited to announce a significant improvement to your pursuit of these goals with ShopKeep: weighted average cost tracking.

What is it?

Weighted average cost is a method of calculating inventory cost that is found by taking the total cost of current inventory and dividing it by the total number of individual units available for sale. This method of inventory costing is simple to understand yet provides valuable insight, helping make it the most popular among small business owners we surveyed. We’re confident you’re going to find it empowers you with much more useful insights than the current Last Cost method.

Why does it matter?

The cost of most items varies over time, and those costs can have a big impact on your bottom line. Cost calculation is the key ingredient to your inventory value, margin, markup, and cost of sales metrics. By taking advantage of ShopKeep’s new weighted average cost feature, your cost calculations will be improved.

How do I get started?

If you’re already using ShopKeep to track inventory quantity and cost, you can just keep doing what you’re doing. ShopKeep recalculates the weighted average cost of an item when you receive it, taking the value of the current inventory, adding the value of the new inventory being received, and dividing by the total quantity that results.

For example, if I have 10 t-shirts on hand at a cost of $10 each (value: $100) and I am receiving 5 more at a cost of $5 each (value: $25), the new weighted average cost will be $8.33 ($125 value / 15 quantity).

You’ll notice that BackOffice now shows the new cost as a weighted average when receiving inventory, and you’ll simply have to hit Get Updates on your Register to make sure that new sales reflect the updated costs as well. You will also see the resulting calculations throughout your reports, including the following: Items List, Sales by Department, Sales by Item, Sales by Discount, Inventory Value, Adjustment History, and Quantity History. Note that the cost you see on the Sales by Department and Sales by Item reports will be based on the average cost of the items at the time they were sold.

Need help? Check out this article to learn how to receive inventory, and remember to periodically count and adjust inventory levels to ensure ShopKeep matches what’s in your store.

And if you’re not already using ShopKeep to track inventory quantity and cost, there’s never been a better time to start! Visit our support site to learn all about inventory management with ShopKeep.

Finally, as always, take a look and let us know what you think by sending us feedback using the menu in the upper right corner of BackOffice.

Will Lynes

Will Lynes

Will Lynes is a Director of Product at ShopKeep with a focus on BackOffice. He has been applying his passion for research, design, and technology to building better tools for small businesses since 2006.