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Physical Inventory Count vs. Inventory Cycle Count: All You Need to Know

What is a Physical Inventory Count vs. Inventory Cycle Count?

Jul 01, 2021
Reading time: 3 minutes

As a c-store owner, inventory loss due to shrink or spoilage will impact your business, but do you know by how much?

For 2020, NACS reports an average shrink and spoilage rate of 0.75% or about $28,000 per year per store. Compare this to the average c-store’s pre-tax profits of 2.75% for small operators and slightly more overall. Reducing shrink and controlling spoilage is possible by using physical and cycle inventory counts.

Physical inventory counts are used to help validate inventory. It may be as infrequently as yearly to meet tax or financial reporting requirements. Cycle counts, on the other hand, provide more timely information by approaching counts based on the risk of loss around inventory categories, such as cigarettes, focusing on where shrink and spoilage are most likely to occur. Read on to discover the differences between physical and cycle counts.

What is a Physical Inventory Count? 

As a retailer, you already know about physical inventory counts, having carried them out or hired a third-party company to help you at least meet reporting requirements. When we use the term, we are talking about a full inventory count, or what is sometimes called a wall-to-wall inventory count. These yearly counts may be enough for stores with a small amount of inventory, but for c-stores, yearly counts will likely leave you open to risk and loss.

Reasons for Physical Inventory Counts:

  • Meeting tax or financial reporting requirements
  • Validating the book inventory for lenders and other third parties

Things to Consider for Full Inventory Counts:

  • Provides you with a yearly look into your shrink and spoilage
  • Disrupts business for hours or days
  • Must be performed within a specific period before the close reporting date
  • Easier to supervise given it is during a set period and covers all inventory
  • Leaves you open to theft going unnoticed for long periods

What are Inventory Cycle Counts?

A cycle count counts inventory based on time cycles and usually centers around reducing the risk of theft and spoilage. It ensures that stock is accounted for on a “regular basis.” This regular basis may equate to a per shift basis.

Cycle counts are also open to fraud in some instances but, generally, provide more timely information on shrink and spoilage. Cycle counts can also dissuade employees from stealing, especially when paired with loss prevention solutions such as analytics and cameras.

High-Risk Inventory Items (Theft):

  • Cigarettes
  • Lottery tickets
  • Laundry detergent
  • Allergy medicine
  • Razors
  • Liquor
  • Pain relievers
  • Infant formula
  • Teeth whitening strips
  • Energy drinks
  • Deodorant
  • Contraceptives

Reasons for Cycle Counts:

  • Meeting tax or financial reporting requirements
  • Validating the book inventory for lenders and other third parties
  • Reducing shrink and spoilage for high-risk inventory

Things to Consider for Cycle Inventory Counts:

  • Provides you with a timely look into your shrink and spoilage
  • Minimal disruption to business
  • Hard to supervise since the counts are more frequent and may require the aid of cameras
  • Does not necessarily replace yearly wall-to-wall inventory counts
  • Can be manipulated since a limited number of items are counted at once

Need a hand managing your inventory?
Download Petrosoft’s free inventory count sheet template to help you better manage your inventory, purchases, and sales. Or get a demo of Petrosoft’s back-store office solution, CStoreOffice®, to understand how to track your inventory in real-time, helping you make better business decisions.