7 Best Practices for Managing Your Craft Inventory (With Examples)

Running out of lavender essential oil the night before a market. Discovering you’ve been sitting on $400 worth of wax you can’t use. Realising mid-production that your beeswax supplier raised prices three months ago and your margins are now underwater.

These aren’t hypothetical problems — they’re what happens when inventory management slips. And for handmade sellers, the consequences are more immediate than they are for retail businesses, because you’re not just selling stock: you’re using raw materials to manufacture it.

The good news? Getting on top of inventory doesn’t require an enterprise system or an accounting degree. It requires a handful of consistent practices applied early — before things get complicated. For a complete foundation, see our guide to inventory management for makers. This post focuses on the specific practices that make the biggest difference.

Here are seven that work.

1. Track Raw Materials Separately from Finished Goods

This is the most important shift in thinking for makers. Retailers track products. Manufacturers track materials and products — and they’re not the same thing.

Your raw materials (wax, oil, clasps, resin, flour, yarn) deplete when you manufacture. Your finished goods (candles, earrings, cakes, scarves) deplete when you sell. Lumping them together means you’ll never get an accurate picture of either.

In practice: Set up two distinct categories in your tracking system — one for materials and supplies, one for finished goods. Every time you receive a material order, log it. Every time you run a production batch, deduct from materials and add to finished goods. Craftybase does this automatically when you record a manufacture run.

There’s also a terminology distinction worth knowing: materials are components used directly in making your product, while supplies are items used in packaging or shipping. Getting this right matters for COGS calculations and tax reporting.

2. Set Reorder Points for Your Most-Used Supplies

A reorder point is the stock level that triggers a purchase order. The moment your lavender essential oil drops below X grams, you know it’s time to reorder — not when you go to use it and find an empty bottle.

Most makers skip this entirely and rely on memory or visual checks. This works until you’re busy, then it fails at exactly the wrong moment.

How to calculate it:

Reorder Point = (Average daily usage × Supplier lead time in days) + Safety stock

If you use 50g of beeswax per day and your supplier takes 7 days to deliver, with a 200g safety buffer: (50 × 7) + 200 = 550g. When your beeswax hits 550g, place an order.

For a full breakdown, see our post on how to calculate reorder points. It’s one of those practices that feels like admin overhead until the first time it saves you from a stockout mid-order season.

3. Document Your Manufacturing Recipes (BOMs)

A Bill of Materials (BOM) is a recipe for your product — a list of every material, quantity, and unit of measure required to make one unit. It’s the foundation of accurate cost tracking and the thing that lets your inventory system automatically deduct materials when you manufacture.

Without it, you’re guessing. With it, every manufacture run updates your stock automatically and your COGS calculation is done for you.

In practice: For each product you make, document:

• Every ingredient or component
• Exact quantities (grams, ml, units)
• Any labour time you want to include in pricing

If your products share sub-components — for example, a fragrance blend used across multiple candle scents — you can create multilevel BOMs that nest one recipe inside another. This keeps quantities accurate and prevents you from having to maintain the same data in multiple places.

Our guide on how to create a bill of materials walks through the process step by step with real examples.

4. Track COGS Per Product from Day One

Cost of Goods Sold (COGS) is the direct cost of producing each item you sell. Most makers don’t calculate it properly — they estimate, or they only look at the cost of the main ingredient and forget labour, packaging, and overhead.

The consequence: you discover you’re making $0.40 profit on an item you thought was netting $4.

What goes into COGS for a maker:

• Raw materials used (from your BOM)
• Direct labour (your time at a set hourly rate)
• Packaging materials directly associated with the product
• Any consumables that can be attributed per unit

Tracking COGS accurately matters for two reasons: pricing (you can’t price profitably if you don’t know your costs) and tax (COGS reduces your taxable income). The IRS requires makers who manufacture goods to track inventory — which means tracking the inputs.

If you’ve been operating with rough estimates, start building accurate BOMs now. It’s easier to establish the system on your current product range than to retrofit it across three years of orders.

5. Use Real-Time Tracking Instead of Periodic Counts

There are two approaches to inventory tracking: periodic (counting stock at set intervals, usually annually or quarterly) and perpetual (updating stock in real-time with every manufacture, purchase, or sale).

Periodic tracking is what most makers start with — a spreadsheet updated when they remember to update it. It feels manageable until it isn’t.

The problem with periodic tracking is the lag. You don’t know you’re low on a material until you count it, and by then it might be too late. You also have to do a large reconciliation task at tax time, correlating what you bought with what you made with what you sold.

Perpetual tracking means every manufacture run deducts materials, every sale deducts a finished good, and every purchase order adds to stock. You have an accurate count at any moment. Combined with a solid stockout prevention strategy — reorder points, safety stock, supplier lead times — you stop flying blind.

This is only practical with software. Maintaining perpetual inventory in a spreadsheet is theoretically possible but breaks down quickly as your product range grows. Craftybase is designed specifically for this: it’s a cloud inventory solution built for small handmade businesses that updates stock automatically when you log manufactures and sync orders from Etsy or Shopify.

6. Reconcile Physical Counts Monthly

Even with perpetual tracking, physical counts matter. Breakage, measurement errors, theft, and data entry mistakes accumulate. A monthly physical count — comparing what your system says you have against what’s actually on your shelf — catches these discrepancies before they become significant.

It doesn’t need to be a full stocktake every month. Rotate through categories:

• Week 1: High-turnover materials (your most-used inputs)
• Week 2: Finished goods ready for dispatch
• Week 3: Packaging and supplies
• Week 4: Slow-moving materials and backup stock

When you find a discrepancy, investigate rather than just correcting the number. A consistent gap between recorded and actual stock of a specific material usually points to a recipe error (your BOM quantity is wrong), a measurement inconsistency, or waste that isn’t being recorded.

7. Review Slow-Moving Stock Quarterly

Not all inventory is equal. Materials you haven’t touched in six months are tying up cash that could be going toward materials you actually need. Finished goods sitting unsold for a quarter are a pricing or demand signal worth acting on.

A quarterly slow-movers review doesn’t need to be complicated. Pull a list of every material and product, sort by last used/sold date, and flag anything that hasn’t moved in 90 days.

Common causes and responses:

• Seasonal materials sitting off-season: Fine to hold if you know you’ll use them. Not fine if you’re ordering new stock on top.
• Discontinued product components: Sell off remaining stock, use in samples, or return to supplier if possible.
• Finished goods that didn’t sell: Revisit pricing, presentation, or the channels you’re selling through. If they’re truly unsellable, write them off — holding them at full value overstates your assets.

The broader principle here is that inventory has a cost even when nothing is happening. It occupies storage space, ties up working capital, and can spoil or become obsolete. Treating slow-moving stock as a problem to solve (not just a feature of the business) keeps your financials cleaner and your cash flowing better.

Common Inventory Mistakes to Avoid

Even with good intentions, makers fall into predictable patterns that undermine their inventory management. Watch for these:

Mixing personal and business stock. If you buy supplies for personal use and occasionally dip into your business stock (or vice versa), your records will never be accurate. Keep them completely separate.

Logging purchases but not manufactures. You can’t track materials accurately if you only record when stock comes in. Every manufacture run needs to be recorded so the system knows what you used.

Using one unit of measure inconsistently. Buying essential oil in millilitres, adding it to your BOM in grams, and recording usage in drops is a recipe for calculation errors. Pick one unit per material and stick to it throughout.

Waiting for tax time to sort out COGS. Reconstructing your cost data from receipts and memory at the end of the year is painful and inaccurate. COGS tracking is a real-time discipline, not an annual reconciliation project.

Not updating recipes when supplier costs change. Your BOM tells you what goes into a product. Your material costs tell you what that BOM is worth in dollars. If your supplier raises prices and you don’t update your cost records, your pricing calculations become wrong immediately.

Frequently Asked Questions