Shrinkage Detection: Finding the 1.4% of Sales That Disappears
Industry average shrinkage is 1.4% of revenue. For a $500K store, that's $7,000/year walking out the door.
March 23, 2026shrinkage, theft, inventory, loss-prevention
The 1.4% Problem
The average retail store loses 1.4% of revenue to shrinkage. For a $500K store, that's $7,000/year. For a $1M store, $14,000. Shrinkage has three causes:
- External theft (shoplifting): ~37%
- Employee theft: ~28%
- Administrative errors: ~25%
- Vendor fraud/damage: ~10%
The Formula
Shrinkage = (Units Received + Prior Inventory) − (Units Sold + Units on Shelf)
If you received 100 units, sold 60, and count 35 on the shelf — 5 units vanished.
How to Classify the Cause
- High-value small items with consistent shrinkage → Likely theft
- Perishables with shrinkage → Likely unlogged spoilage
- Random items occasionally → Likely counting errors
The 5% Rule
Focus on items where shrinkage exceeds 5% of expected inventory. Below that, investigation cost exceeds the loss.
High-Risk Categories
- Grocery: Premium meats, cheese, baby formula, seafood
- Liquor: Mini bottles, premium tequila/whiskey, vape products
- Convenience: Energy drinks, OTC medicine, razors, candy bars
KairosPal's Shrinkage Detector compares POS data against inventory counts, flags items above 5%, and estimates dollar losses by category. Start your free demo.