In the world of B2B distribution, proper inventory management is key to ensuring profitability and smooth operations. And to manage inventory effectively, some metrics are essential. One of the most important is the average inventory.
It helps you estimate the average value or quantity of stock you hold over a given period and serves as the foundation for other important metrics like inventory turnover.
In this article, we’ll break down what average inventory is, why it matters, how to calculate it, and—most importantly—how to use it to make smarter business and operational decisions.
Average inventory refers to the average quantity of goods a company holds over a specific period (month, quarter, year, etc.). It can be expressed either in monetary value or units.
Average inventory is a reference metric that helps you:
For B2B distributors, knowing your average inventory makes it easier to anticipate demand, plan restocks, and manage cash flow more effectively.
The basic formula for average inventory is simple:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
If you start the month with $10,000 in inventory and end it with $14,000, your average inventory is:
(10,000 + 14,000) / 2 = $12,000
This formula can be adapted for more accurate results depending on your situation.
If you track your inventory monthly, you can refine the calculation like this:
Annual Average Inventory = (Inventory Month 1 + Inventory Month 2 + ... + Inventory Month 12) / 12
This approach gives a more accurate picture if your inventory levels vary due to seasonality, promotions, or special events.
You can also calculate average inventory in physical units rather than dollars. This is useful for products with stable prices or when you're managing stock levels regardless of value.
In some cases, you might want to weight your inventory based on sales volume or product categories. This gives you a more strategic view by factoring in the profitability of specific items.
Average inventory is a decision-making tool, especially valuable for distributors, resellers, and B2B wholesalers.
Here’s how you can use it in practice:
Inventory turnover tells you how many times you sell through your average inventory during a specific period.
Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
👉 The higher the turnover, the more efficient your inventory management. Want to dive deeper? Check out our article on inventory turnover.
A high average inventory might signal overstocking, which ties up your cash flow. On the other hand, low average inventory can lead to stockouts and missed sales.
By comparing average inventory to your sales cycles, you can better plan restocking and purchase orders.
To ensure your calculation is accurate, you need to clearly define:
You can pull these values from your inventory management system or accounting software.
💡 With Erplain’s inventory management solution, you can check stock levels at any point in time with just a click—making it easier to calculate average inventory.
You can certainly use Excel for simple calculations. But as soon as you're managing multiple products, suppliers, customers, and a high volume of orders, you'll quickly need a more robust solution.
An inventory management solution like Erplain helps you:
👉 Bottom line: you’ll spend less time crunching numbers and more time making informed business decisions.
Average inventory is a foundational metric for running a distribution business efficiently. Easy to calculate, it helps you better anticipate demand, improve sales strategies, and manage cash flow.
But to really benefit from it, you need the right tools. That’s why many B2B distributors rely on Erplain to centralize purchasing, sales, and inventory with real-time, reliable data.
