How do you calculate inventory shrinkage and the shrinkage rate?

Shrinkage = recorded stock − counted stock. Shrinkage rate = shrinkage ÷ recorded stock × 100. For example, if records show 5,000 units and the count finds 4,940, shrinkage is 60 units and the rate is 1.2%. At a cost of ₹300 a unit, that is ₹18,000. Use value at cost to add up across SKUs.

What causes inventory shrinkage in an ecommerce warehouse?

The common causes are receiving errors, where a short delivery is recorded as full; stock put away in the wrong bin; damage and expiry not recorded; mis-picks, where the wrong item ships and the right one stays on record; customer returns and RTO parcels not checked back into stock; and theft. Record a reason with every adjustment, so you can see which cause is yours.

How do cycle counts help find shrinkage?

Cycle counts check a few bins or SKUs at a time, often every day, instead of the whole warehouse once a year. Because each count is small and recent, a difference can be traced to a specific bin, SKU, delivery or shift. Counting high-value and fast-moving items more often finds loss sooner.

How can a brand reduce shrinkage at receiving, picking and returns?

At receiving, count every delivery against the purchase order and ASN before signing the GRN. At picking, scan the bin and the item, and check again at packing. For returns, match every parcel to a quality check and a putaway or write-off. Record damage and expiry with a reason as they happen.

What is an acceptable inventory shrinkage rate?

It varies by category and channel. One published figure comes from US retail: the National Retail Federation's 2023 survey reported an average shrink rate of 1.6% for US retailers in FY 2022, as a share of sales. We found no equivalent published figure for Indian ecommerce warehouses, so track your own rate per category and look for the trend.

What is the difference between inventory shrinkage and an inventory discrepancy?

An inventory discrepancy is any difference between the stock record and the count, in either direction: more or fewer units than recorded. Shrinkage is the loss side, where the count is lower than the record. Some discrepancies are recording errors that a recount or a missed GRN explains; shrinkage is what remains as real loss after those are corrected.

What is inventory shrinkage?

Inventory shrinkage is the difference between the stock a business's records say it has and the stock physically there when it is counted. The missing units may have been stolen, damaged, mis-picked, received short, or never put back after a return. It is shown in units, as a value at cost and as a percentage.

In retail and warehousing, shrinkage means lost stock. In BPO and call-centre staffing, it means agent hours lost to leave and breaks; that is a different topic.

How shrinkage happens in an Indian D2C or omnichannel warehouse

The formula

Shrinkage (units) = recorded stock − counted stock

Shrinkage rate = shrinkage ÷ recorded stock × 100

Use units for one SKU or bin; use value at cost for the whole warehouse.

Example. Records show 5,000 units of a SKU. A full count finds 4,940.

Shrinkage = 5,000 − 4,940 = 60 units.
Shrinkage rate = 60 ÷ 5,000 × 100 = 1.2%.
At ₹300 cost a unit, the loss is 60 × ₹300 = ₹18,000.

The figures are illustrative.

Where shrinkage starts in an ecommerce warehouse

Stage	How stock goes missing
Receiving	Short or wrong deliveries accepted at the GRN without a count against the PO
Storage	Stock put in the wrong bin, damaged on the shelf, or expired and not written off
Picking and packing	Mis-picks: the wrong item ships and the right one stays on record
Returns	Customer returns and RTO parcels recorded as received but never checked back into stock, or lost in transit
Theft	Internal or external, at any stage

How to find it

Count by bin. Cycle counts bin by bin show where the gap is, not only that it exists.
Check receiving. Compare each delivery with the purchase order and the supplier’s ASN before signing the GRN.
Check returns. Match every return and RTO parcel to a quality check and a putaway, or a write-off.
Look for patterns. Shrinkage that repeats in one bin, one SKU or one shift points to a process, not bad luck.
Record damage and expiry as they happen, so they are not counted later as unexplained loss.

How shrinkage is written off in the books, and its tax treatment, are questions for your accountant.

Common mistakes

Counting only once a year. By then nobody can say where or when stock went missing.
Adjusting stock without a reason code. Theft, damage, expiry and receiving errors need different fixes.
Signing a GRN for the invoice quantity instead of the counted quantity.
Leaving returns unprocessed. Parcels in a corner are on record as stock but can’t be sold.
Blaming theft first. Check receiving, picking and returns records before assuming stock was stolen.

Shrinkage rate = shrinkage ÷ recorded stock × 100. Example: 60 ÷ 5,000 = 1.2%.
Count variance by bin = bins with a difference ÷ bins counted. Example: 14 of 400 bins = 3.5%.
Inventory turnover ratio: unrecorded shrinkage overstates average inventory and understates turnover.

Shrinkage in the Indian context

What an acceptable rate is. It varies by category and channel. One published figure comes from the US: the National Retail Federation’s National Retail Security Survey 2023 reported an average shrink rate of 1.6% for US retailers in FY 2022, up from 1.4% in FY 2021. That figure is a share of sales across US retailers, so it isn’t a benchmark for an Indian ecommerce warehouse. No comparable published figure for Indian ecommerce warehouses was found; track your own rate per category over time.
RTO and returns. Ecommerce warehouses in India handle a steady flow of RTO parcels and customer returns. Each one that isn’t received, checked and restocked or written off becomes shrinkage at the next count.
Receiving against supplier paperwork. Count each delivery against the purchase order and the supplier’s invoice and ASN before accepting it; a short delivery found later is hard to claim back.

How Fretron CommerceOS handles inventory counts

Bin-level accuracy is live in the Fretron CommerceOS warehouse module. Cycle counts in Fretron CommerceOS are blind counts taken on the phone and posted from the office, not updated with each scan. In Fretron CommerceOS, returns come back through QC on the same record, with a disposition recorded per line. The CommerceOS page lists returns as “In launch verification”.

Questions and answers

What is inventory shrinkage?: Inventory shrinkage is stock that your records say you have but that isn't there when you count it. It comes from theft, damage, picking mistakes, short deliveries accepted as full, and returns that never made it back into stock. It is measured in units, in value at cost, and as a percentage of the stock on record.
How do you calculate inventory shrinkage and the shrinkage rate?: Shrinkage = recorded stock − counted stock. Shrinkage rate = shrinkage ÷ recorded stock × 100. For example, if records show 5,000 units and the count finds 4,940, shrinkage is 60 units and the rate is 1.2%. At a cost of ₹300 a unit, that is ₹18,000. Use value at cost to add up across SKUs.
What causes inventory shrinkage in an ecommerce warehouse?: The common causes are receiving errors, where a short delivery is recorded as full; stock put away in the wrong bin; damage and expiry not recorded; mis-picks, where the wrong item ships and the right one stays on record; customer returns and RTO parcels not checked back into stock; and theft. Record a reason with every adjustment, so you can see which cause is yours.
How do cycle counts help find shrinkage?: Cycle counts check a few bins or SKUs at a time, often every day, instead of the whole warehouse once a year. Because each count is small and recent, a difference can be traced to a specific bin, SKU, delivery or shift. Counting high-value and fast-moving items more often finds loss sooner.
How can a brand reduce shrinkage at receiving, picking and returns?: At receiving, count every delivery against the purchase order and ASN before signing the GRN. At picking, scan the bin and the item, and check again at packing. For returns, match every parcel to a quality check and a putaway or write-off. Record damage and expiry with a reason as they happen.
What is an acceptable inventory shrinkage rate?: It varies by category and channel. One published figure comes from US retail: the National Retail Federation's 2023 survey reported an average shrink rate of 1.6% for US retailers in FY 2022, as a share of sales. We found no equivalent published figure for Indian ecommerce warehouses, so track your own rate per category and look for the trend.
What is the difference between inventory shrinkage and an inventory discrepancy?: An inventory discrepancy is any difference between the stock record and the count, in either direction: more or fewer units than recorded. Shrinkage is the loss side, where the count is lower than the record. Some discrepancies are recording errors that a recount or a missed GRN explains; shrinkage is what remains as real loss after those are corrected.

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Last reviewed: 5 November 2026 by Fretron.

Sources

National Retail Security Survey 2023. National Retail Federation (US), 2023. https://nrf.com/research/national-retail-security-survey-2023 (accessed 5 Nov 2026).