The cost of an item is what you paid for it, not including shipping or fees/freight. Since your costs can change over time, Shopventory assigns a cost to every unique batch of inventory that comes in. We refer to these as “lot costs”. Tracking costs by lot keeps your sales and inventory reports accurate over the long haul. Shopventory keeps track of your lots on an industry-standard FIFO (first-in, first-out) basis.
Most POS systems (including all of the systems Shopventory integrates with) do not track costs by lot, so these systems provide inaccurate historical reporting when your costs change.
To manage costs efficiently, you’ll want to pay attention to your products’ default costs as well as their lot costs. Here’s a look at what differentiates the two types of costs and how they work in Shopventory.
What it is
The default cost is your fallback. This is what Shopventory assumes you will pay for your product whenever you receive a new shipment until told otherwise. You’ll see this value in gray on the main inventory page.
Note: If you have multiple lots in stock at different costs, this value in gray will be the next lot cost in line rather than the default.
How to Set and Edit Default Costs
Default costs can be managed in several different places:
- The Edit Product panel. Click on your product name to get here. You can enter the default cost once to be used across multiple locations, and/or set location-specific values as needed.
- On the main inventory page, using Actions / Edit.
- Using the bulk upload tool “Edit Variants”. This spreadsheet includes the default for all locations (Column H, “Default Cost”) as well as the option for location-specific differences (e.g. “Denver Default Cost”).
Receiving inventory at a dollar amount different from your default cost will never automatically change the default itself. Historical default costs are not tracked, since you can see what you actually paid in your lot cost history (more on that below).
How Default Cost is Used
- If your POS system supports costs, we sync the default cost to the POS.
- When you go to Receive inventory on a Purchase Order, in the Edit Product panel, on the main inventory page (Actions / Add), through the mobile barcode scanner app, or on a bulk upload, we’ll suggest the default cost. It can be edited before receiving.
- When you Reconcile inventory quantities, editing to a higher number will automatically create a new lot using the default cost.
- When you transfer inventory between locations, we’ll use the default to display “estimated cost” for each variant.
- Default costs are not used for any reporting purposes, such as calculating inventory value or profits, since it will not give accurate results over time. Lot costs are used on all reports.
What is a Lot Cost?
A "lot" of inventory is defined as a group of units that arrived in a given shipment. For instance, if I add a quantity of 12 to one of my products, I have added a lot that contains 12 units. The lot cost is the cost-per-unit applied to a given lot. Shopventory assumes you sell inventory on a FIFO (first in, first out) basis, so your oldest available lot is always diminished first.
How to Set Lot Costs
Lot costs are applied when receiving inventory by any means. The default cost will be used or suggested if one is available. If no default cost has been set and you don’t enter a value, the lot cost will be left blank (that is, "Not set").
A product without a quantity in stock cannot have a lot cost, since by definition there is no lot to which a cost can be applied. These products will say "Not set" even if a default cost is in place. Simply add a quantity and you’ll see the lot cost appear.
How to See and Edit Lot Cost History
To access your lot history, click on the current lot cost in blue on the main inventory page.
Then, use the Edit button in the top right corner to make changes. Simply type over any cost to change it (no need to backspace or delete).
How Lot Costs are Used
- Calculating the value and profitability of your inventory on hand (see your inventory report)
- Calculating the profit for each sale (see your sales report)
- Calculating profit margins for each variant
- Lot costs are maintained when transferring inventory from one location to another.
A blank or empty lot cost (displayed as “Not Set”) is not the same as having a cost of $0. It means Shopventory doesn’t know what you paid for that batch of inventory, so we won’t include that lot in your report totals.
For example, suppose I sell a product for $5. The revenue for this sale is always $5, but the calculated profit depends on the lot to which the unit sold belongs.
- If the lot cost is empty, no profit is calculated.
- If the lot cost is $2, my profit is $3.
- If the lot cost is $0, my profit is $5.
Bundle costs are derived from the current lot costs of their component products. This cost is only calculated and cannot be edited directly. If your bundle cost is incorrect, double check the costs of each component, and the number of components used in each bundle (read more on how to manage bundles here).
Bundles do not have lots. When a bundle is sold, Shopventory will calculate cost and apply it directly to the sale. Bundle costs cannot be edited after a sale is made.
Inventory Tracking Disabled
If inventory tracking is disabled on a product, it will not have a quantity or lot history. The current default cost will be applied to sales. Click here to read more about the inventory tracking toggle.
Your lot history begins at the moment you sign up with Shopventory and import or create your inventory. To set costs for sales that occurred prior to Shopventory, read Backfilling Historical Costs.
Shopventory does not average any costs by default. Click here to read more about cost averaging in Shopventory.
Alternative keywords: COGS, LIFO, cost of goods sold
Let us know if you have questions. We are here to help!