Order enough this quarter to cover its expected use plus a chosen share of next quarter's need, minus stock on hand. The answer depends on two things you can see today, what is on the shelf and what is in the stockroom, and one thing you have to estimate, which is how much you will sell or use in the next quarter. Many shops guess at that last part and order by feel. This post describes a more disciplined method. Decide in advance how much stock you want on hand when the quarter closes, then order what is needed to reach that level.
Key takeaways
- Choose the share of next quarter's need you will hold, and write it down for each product group.
- Forecast next quarter's need first, and note the source and date range of the forecast.
- Convert the forecast into the units and inputs you buy, and count in the supplier's unit.
- Order this quarter's expected use, plus the target, minus units on hand, then round to pack sizes.
- Compare the closing count with the target, and adjust the share where a group keeps running short or finishing heavy.
The target used here comes from a managerial accounting textbook. It is one example's number rather than a rule, so adjust it to your business. The logic still applies to owners, managers, and staff who count stock and set reorder quantities.
Why the end of the quarter matters
Stock on hand at quarter end is not just leftover inventory. It is the opening position for the next quarter. If you run short in the first weeks of a new quarter, sales wait on a delivery. If you carry too much, cash sits on the shelf, and the risk of damage, theft, or expiry grows.
This textbook treats ending inventory as a planning number for this reason. In a worked example on operating budgets, the textbook explains: "In order to determine the ending inventory in quarter 4, Big Bad Bikes must estimate the sales for the first quarter of the next year." (Source: OpenStax, Prepare Operating Budgets) The closing stock depends on what you expect to need in the next period, so you cannot set it well without a view of next quarter.
That is the first lesson. The closing count is a forecast decision, not just a tally.
The idea in one sentence
Hold enough stock at quarter end to cover a chosen share of next quarter's expected need, and order this quarter with that in mind.
The textbook states the goal in similar terms: "Management’s goal is to have 20% of the next quarter’s material needs on hand as the desired ending materials inventory." ( OpenStax, Prepare Operating Budgets) The example involves a company that makes bicycles from purchased materials, not a shop buying goods to resell, but the structure carries over. Replace "materials" with the products you buy and resell, and the question stays the same: how much of next quarter's demand should already be in your stockroom when this quarter closes?
Twenty percent is a starting point, not a standard. A shop with long supplier lead times might want more. A shop with fast, reliable deliveries might want less. Pick a number on purpose, write it down, and check it at the next count.
Trade-offs in the 20% figure
Holding more stock at quarter end protects against shortages but costs money. The cash tied up in stock could pay bills, fund a promotion, or wait in the bank. Holding less frees cash, but a gap in the first week of the next quarter can mean lost sales and customers who go elsewhere.
The right share depends on which mistake hurts more. A shop where a missing item loses a sale outright may accept a higher target. A shop where stock spoils, goes out of fashion, or is hard to store may prefer a lower one. Think about both costs for each product group, not for the business as a whole, because the answer often differs between fast sellers and slow ones.
Step 1: Estimate next quarter's need
Everything depends on the forecast. Start with sales history for the same quarter last year, then adjust for known changes: a new product line, a price change, a seasonal event, or a lost account. Then convert the forecast into units.
The textbook makes this chain explicit. "The number of units is multiplied by the sales price to determine the sales by quarter." ( OpenStax, Prepare Operating Budgets) A shop can use the same chain as a check: expected units times price gives expected sales dollars, and expected units alone drive what you need to buy.
Write the forecast down with its source. A note such as "same as last year plus the new display" is more useful at the next count than a number that exists only in someone's head. When the forecast misses, you will want to know whether the assumption or the execution was at fault.
Keep the estimate for next quarter separate from this quarter's. Staff often mix them up, especially when a promotion runs across the quarter boundary. Label each figure with its date range.
New products have no history. For those, use the closest comparable product or the supplier's advice, and mark the forecast as a guess. Guesses are fine if you label them. They become a problem when they are treated as facts and nobody revisits them.
Step 2: Turn units into quantities you can order
A forecast in units is not yet an order. For the inputs and formula, see quarterly units to order. Each product may contain parts, ingredients, or packaging, and each has its own unit cost. Convert the forecast into quantities of every input you will buy.
The textbook shows the same chain with materials. "If Big Bad Bikes uses 3.2 pounds of material for each trainer it manufactures and each pound of material costs $1.25, we can create a direct materials budget." ( OpenStax, Prepare Operating Budgets) A shop that assembles, bundles, or repackages goods has the same kind of relationship: a quantity of inputs for each unit sold, and a cost for each input.
The same page shows how those quantities turn into cost: with 6,000 units estimated for sale, 3.2 pounds of material for each unit, and $1.25 for each pound, the direct materials used represent $24,000 of the cost of goods sold. ( OpenStax, Prepare Operating Budgets) You do not need a formal model to benefit from the habit. Know how many of each input one unit uses and what each input costs, and the order sheet stops being a guess.
If your products arrive ready to sell, the conversion is simpler. Units for sale are the units you buy, and the step still matters. Count in the unit your supplier sells in. A case is not the same as a single item, and an order sheet that mixes the two causes errors.
Step 3: Set the ending-stock target
Now set the closing target. Take next quarter's forecast and apply the share you want to hold. The textbook works the same way. "Recall that the number of units to be produced during the first quarter of year 2 is 3,800." ( OpenStax, Prepare Operating Budgets) From that figure, "Thus, quarter 4 materials ending inventory requirement is 20% of 3,800." ( OpenStax, Prepare Operating Budgets)
Write the target in the unit you buy, and put it on the order sheet beside the forecast. Two figures now sit side by side: what you expect to need, and what you want left at the end.
A target is a policy, so decide who sets it. Owners often set the percentage, and managers apply it to each product group. Staff who count the shelves should know the percentage too, because they are the people who will notice first when it does not fit reality.
Step 4: Count what is on hand
The order is only as good as the count. For a fuller check, see physical inventory reconciliation. Count what is physically in the stockroom, on the floor, and in any back room that is easy to forget. Count in the supplier's unit. Set damaged, expired, or held stock aside and keep it out of the usable figure.
Count at the same point each quarter, ideally at the same time of day. Stock moves during trading hours, so a count at opening and a count at closing will not match. Record who counted, and have a second person spot-check the high-value items.
A blind count helps. The counter writes the quantity down before seeing the expected figure. Without that step, people tend to accept the system number, and errors go unnoticed.
Recount anything that looks wrong before you order. A surprising number is often a counting error, a missing box, or a unit mix-up, and a quick recount costs less than a wrong order.
Step 5: Work out the order
With the forecast, the target, and the count in hand, the arithmetic is short. For each product, the quantity to buy this quarter equals this quarter's expected use, plus the ending target, minus the units already on hand. The ending target is your chosen share of next quarter's expected use (the textbook example uses 20%).
Put plainly: quantity to buy equals this quarter's expected use, plus your chosen share of next quarter's expected use, minus units on hand. If that result is zero or below, you already hold enough and order nothing for that product.
Then round up to the supplier's pack size. If packs come in fixed sizes, the order will often be a little more than the formula says. That is normal. Note the rounding so the next count does not look like a miscalculation.
Before you send the order, compare the result with last quarter's order for the same product. A large difference is not wrong by itself, but it should have a reason you can name. If you cannot name one, check the forecast and the count again.
Illustrative example: one product
Take one product. The count shows 35 units on hand today.
Now imagine two versions of the same product. In the first, next quarter looks busy, so its expected need is large. The target rises with it, and the order this quarter grows, even though this quarter looks normal. In the second, next quarter is quiet, its expected need is small, and the order shrinks. The same rule produces both results, which is the point. The ending target responds to the forecast for the next quarter, not to the stock you happen to have.
Lead times and timing
The order you place today arrives after a delay, and that delay matters. A supplier with a long lead time needs an earlier order date, because stock that arrives after the quarter closes does not help with the closing count. Ask suppliers how long delivery usually takes, and note that answer next to each product on your sheet. Then choose an order date that gives you time to receive, check, and shelve the stock before the quarter closes.
Timing also affects cash. Ordering far ahead of need ties up money in stock that could have been spent elsewhere. Ordering too late leaves gaps.
Minimums and ending targets
Inventory software often has a minimum quantity setting, and it is easy to confuse it with an ending target. Odoo's reordering rules describe a "Min Quantity" as the minimum amount of product that should be available. A minimum is a floor. The ending target is different: it is a level you aim to hold when the quarter closes, based on next quarter's need.
Keep both numbers on your sheet. The minimum tells staff when a product is getting too low. The ending target tells the buyer how much to bring in for the quarter close.
Common mistakes
- Using this quarter's sales as next quarter's forecast. Last quarter's pattern is a starting point, not the answer.
- Applying the percentage to the wrong quarter. The target belongs to next quarter's need, not the one you are closing.
- Mixing units. Counting cases in one column and single items in another.
- Counting damaged stock as usable. It takes up space but cannot be sold.
- Using one percentage for everything. A slow-moving or long-lead item may need a different share than a fast one.
- Never checking the result. If you do not compare the closing count with the target, you cannot learn from it.
Check the result after the quarter
When the next count arrives, compare three things: the forecast, the target, and the actual closing stock. If you ran short, the forecast or the target was too low, or an order arrived late. If you finished heavy, the target may be too high for that product. Write down the cause each time, so the next estimate starts from evidence rather than memory. To check gaps in more detail, see comparing predicted and actual usage.
Over several quarters, the record tells you whether 20% is right for each product group. If a group always runs short, raise its share. If it always finishes heavy, lower it. The percentage is a setting you tune, not a figure to defend.
Keep the record simple
You do not need expensive software to run this. A spreadsheet with one row for each product is enough. Columns can cover the product name, the unit, this quarter's expected use, next quarter's expected use, the target share, the target in units, the count on hand, the order quantity, the pack size, and the actual closing count. That is ten columns, and each one answers a question someone will ask at the next count.
Keep the sheet in one place and date each version. Note any change in product mix, supplier, or price in a comments column, so the reason for a change in order size is not lost.
Who does what
Stock planning fails when everyone assumes someone else is watching. Name one owner or manager for the target, one person for the forecast, and one person for the count. The roles can overlap in a small shop, but each task needs a name beside it.
Owners decide how much cash can sit in stock and how much risk is acceptable. Managers turn that decision into product-level targets and check the forecasts against what they see on the floor. Staff who count and receive goods are the early warning system. They notice a box that should have arrived and did not, a product that sells faster than the sheet says, or a count that does not reconcile.
Quarter-end checklist
- Confirm the next quarter's forecast, with its source and date range.
- Convert each forecast into the units and inputs you buy.
- Apply the target share to next quarter's need and write it beside the forecast.
- Run a blind count, with damaged and held stock set aside.
- Work out the order for each product, then round to pack sizes.
- Have a second person check the high-value lines.
- Record the target, the count, and the reason for any gap.
Start this quarter
Holding 20% of next quarter's need as ending stock on hand is a simple idea. It turns the closing count into a plan. It asks for a written forecast, a count you can trust, and an order checked against a target. The textbook example uses a bicycle maker, but the method is the same for a shop, a stockroom, or a warehouse aisle. Start with one product group this quarter, write the numbers down, and see how close you come. Next quarter, add another group.
Related guides: On-hand stock: 4 figures to check after movements · Check 4 refund fields before stock goes back on shelf · Count shop stock: 4 apps compared for small retailers.
Frequently asked questions
What share should I hold at quarter end?
Choose your own share for each product group, because the textbook's 20% is only an example figure.
Is the ending target the same as a minimum?
No. A minimum is the floor that shows when a product is getting low, while the ending target is the level you aim to hold when the quarter closes.