Getting Started With Your Inventory

Every small batch maker hits the same wall when production starts ramping up: managing all of the stuff. Raw materials, packaging supplies, components, tools — and the growing pile of finished products waiting to ship.

And where are you keeping all of it?

If you’re like most makers, you don’t have the luxury of a warehouse or a dedicated production facility. You’re working from a spare room, a garage, or a shared studio. That means materials compete for space with everything else in your life.

A disorganized setup also makes it harder to run your actual business. Think about it — how much time do you lose hunting through supplies to find one particular item when you need it most?

Inventory management is both a skill and a system that you need to pick up as soon as possible if your business is going to grow. Whether you make candles, soap, cosmetics, jewelry, food products, or any other small batch goods, this guide will help you get started.

Why does inventory management matter?

Inventory management can mean the difference between a part-time side hustle and a sustainable small business.

Without exaggeration, proper inventory management can:

• Increase your production speed
• Reduce your overhead costs
• Increase your profit margins
• Improve product quality and consistency
• Eliminate clutter in your workspace
• Simplify your taxes and COGS calculations

Excited yet? We are! Let’s get started.

Establishing inventory basics

Building your first inventory management process may sound like a big project (and it is), but it’s still doable — even if you’re running the business by yourself. What you need to do is break the project down into phases, each with their own micro-goals.

And to help you get started, we’ve laid these micro-goals out for you:

1. List what you have on hand

You can’t manage your inventory if you don’t know what you’ve already got on hand. So the first thing you need to do is make a count of all of the materials, supplies, and finished products currently in stock.

After you’ve built your baseline inventory count, you can then determine if you are understocked or overstocked on specific items, and whether or not you need to resupply. This will also be a good opportunity to review the types of products that you buy, and judge whether you’re satisfied at the current levels of quality and cost.

2. Organize your storage process

Some makers brag about having an “organized mess” of a workspace — but if you’re going to run an efficient business, you need to do a lot better than that.

Store raw materials and supplies into separate and clearly-labeled bins or shelves. Arrange your storage so that the most commonly used materials are the most accessible, while keeping the rest in a convenient place.

This way, you’ll be able to both find things more easily while you’re working, and speed up inventory tracking when you do your counts.

3. Track and estimate inventory costs

One of the major reasons to do inventory management (aside from making it easy for you to craft products) is to understand your costs.

When you understand your costs, you’ll be able to assess how much you’re spending on materials and supplies, and see how much of it is eating into your profit margin. Armed with that knowledge, you’ll be able to experiment with your pricing to see if you can find the right “sweet spot” of pricing high enough to earn a decent profit, and low enough that customers will still buy your products.

4 Common Pricing Mistakes Makers Make →

You’ll also be able to assess and correct past spending habits—you might chronically under-buy supplies, for example, and run out at critical times. Or maybe the opposite, where you over-buy slow-moving materials and wind up dumping the excess.

You can then build on that baseline knowledge of your costs and spending to predict future costs, which will be important for setting your budget and anticipating seasonal changes.

4. Consider buying in bulk

Now that you’ve assessed your buying habits and their impact on how much you spend on materials, you may want to consider buying some items (not all) in bulk.

When buying in bulk, prioritize items that:

• Are used frequently and in large quantities
• Store well
• Offer a significant price discount when bought in bulk

Buying in bulk may mean developing relationships with manufacturers for the bulk items. You may have to shop around a bit before finding a manufacturer you’re comfortable working with.

5. Re-track and re-tune progress

Remember that inventory management is a process of ongoing improvements. What we just did now was to get you started on a basic, baseline level of organization. There will still be plenty of opportunities to revisit your inventory management and make refinements as you develop a Standard Operating Procedure for stocking goods.

This can happen for a number of reasons. For example, you might not be happy with your first attempt at categorizing materials and rearrange things on the shelf. Or maybe you started making a new product that requires new materials or uses up materials faster.

Or perhaps you started learning about the FIFO and LIFO inventory management process and would like to optimize your stocktaking and storage processes to be more compliant.

Whatever the case may be, stay flexible and don’t be afraid to make changes if it will lead to a better system — even if the definition of “better” shifts over time.

As your business grows, you’ll likely want to move from spreadsheets to dedicated manufacturing inventory management software that can track raw materials, work-in-progress, and finished goods automatically. Creating a Bill of Materials for each product is also a natural next step — it connects your inventory tracking directly to your production process.

Are you looking for more insight on how your inventory is affecting your potential profit? Check out Craftybase’s Pricing Guidance tool and become more confident in your product pricing.

Frequently Asked Questions

What is inventory management for small batch makers?

Inventory management is the process of tracking your raw materials, supplies, and finished products so you always know what you have on hand, what you need to order, and how much your stock is worth. For small batch makers, this means keeping tabs on everything from ingredients and packaging to completed products ready to ship.

When should I start tracking my inventory?

As soon as you’re selling regularly. Even if you only have a handful of products, establishing an inventory system early prevents costly mistakes later — like running out of a key material mid-order or overbuying supplies that expire before you use them.

Do I need inventory management software, or can I use a spreadsheet?

A spreadsheet is a perfectly fine starting point. But once you’re managing more than a dozen materials or producing multiple products, a dedicated tool like Craftybase can save hours of manual tracking by automatically calculating costs, updating stock levels, and generating reports.

How do I calculate the cost of my inventory?

Start by recording the purchase price of each raw material. Then use your Bill of Materials to calculate the material cost per product. Don’t forget to include labor and overhead costs to get a true picture of your cost of goods sold (COGS).

What’s the difference between raw materials, work-in-progress, and finished goods?

Raw materials are the ingredients and supplies you purchase. Work-in-progress (WIP) includes items currently being made. Finished goods are completed products ready for sale. Tracking all three stages gives you full visibility into your production pipeline.