Inventory and stock terms
Stock is the largest sum of money most sellers never look at directly. It appears as a warehouse, not as a balance, and the cost of holding too much of it is spread thinly enough to stay invisible.
These six terms are the vocabulary for looking at it properly: what the goods cost, how much cover you keep, when to reorder, how fast it moves, and what to call the part that has stopped moving altogether.
COGS (cost of goods sold)
The direct cost of the goods actually sold in a period — the purchase price plus what it took to get them saleable and into your warehouse.
Where the line sits
Inbound freight, duty and clearance belong in it — they are part of what the goods cost you. Marketplace commission, fulfilment and advertising usually do not; they are selling costs.
For pricing decisions the more useful figure is contribution margin, which includes those selling costs. COGS is the accounting view; contribution margin is the commercial one.
Safety stock
The buffer inventory held above expected demand, to absorb demand spikes and late supplier deliveries.
What actually drives it
Two things: how variable your demand is, and how unreliable your lead time is. A steady seller from a punctual supplier needs almost none; an erratic seller from a factory that slips by three weeks needs a lot.
Lead time variability usually matters more than demand variability, which is why a nearer, dearer supplier can be cheaper overall — the saving is in the buffer you no longer have to finance.
Reorder point
The stock level that triggers a new order — enough to cover demand during the supplier’s lead time, plus safety stock.
The formula
reorder point = daily demand × lead time + safety stock
Lead time means the whole chain, not the factory’s production time: production plus freight plus clearance plus inbound to your warehouse. Sellers who count only production discover the gap when the shelf is empty and the container is still at sea.
Inventory turnover
How many times you sell and replace your average inventory in a period. Cost of goods sold divided by average inventory value.
Why it matters more than margin sometimes
A product with a 20% margin turning over eight times a year generates far more annual return on the same cash than a 40% margin turning over twice. Margin tells you what each sale earns; turnover tells you how often that happens.
This is why a supplier’s better unit price against a larger MOQ is often the worse deal — the discount is real, and so is the year your cash spends sitting on a shelf.
Dead stock
Inventory that has stopped selling at any acceptable rate. It still costs storage and still occupies the cash you paid for it.
The sunk cost trap
What you paid for it is gone either way. The only live question is what it is worth now, against the storage it will consume and the cash it is holding.
Under fulfilment programmes that charge long-term storage the arithmetic is blunter still: holding out for a better price while paying rent on the goods usually loses more than the discount would have. This is the stock to discount, not your best seller.
Dropshipping
A model where you sell goods that your supplier ships directly to the customer, so you never hold the stock yourself.
What it does not remove
You are the seller. The VAT on the sale, the import obligations if the goods come from outside the EU, product safety compliance and packaging registration all remain yours.
Shipping directly from a non-EU supplier to an EU consumer is an import in the customer’s name unless you use IOSS — which is how buyers end up paying a handling fee they did not expect, and how you end up with the complaint.