There are two main ways to track and manage inventory: perpetual and periodic inventory systems. Each method has its own benefits and is used by different types of businesses. Periodic inventory is simpler and works well for small operations just getting started. Perpetual inventory is more detailed and accurate, making it a better fit for growing businesses that need better control.

In this guide, we’ll break down perpetual vs. periodic inventory, how each system works, and which one makes the most sense for your business.

 What Is a Periodic Inventory System?

A periodic inventory system tracks inventory by doing physical counts at set intervals, like weekly, monthly, or quarterly. These counts act like checkpoints, helping you see what you have and what’s missing.

It’s a simple setup. You start with a beginning inventory, buy more stock during the period, and then count everything again at the end. From there, you can calculate your cost of goods sold (COGS) using this basic formula:

COGS = Beginning Inventory + Purchases – Ending Inventory

Many small businesses start with periodic inventory because it’s easy to manage. You don’t need special tools—just a notebook or spreadsheet.

But there’s a trade-off. You usually need to pause operations during the count, which can slow down productivity. The more often you count, the more accurate your data will be, but that also means more interruptions.

If you go too long between counts, you risk losing track of inventory. This makes it harder to reorder on time or spot theft and damage. The more items and locations you manage, the tougher this system gets.

In short, periodic inventory works best for small businesses with low sales volume and few SKUs. But as your business grows, its limitations become more noticeable.

Pros and Cons of Periodic Inventory

Pros

• Simple to set up: You don’t need software or scanning tools. A spreadsheet or even pen and paper can work.
  
• Low cost: No need to invest in technology or training to get started.
  
• Good for small businesses: If you don’t have many products or high sales volume, periodic counts may be enough.
  

Cons

• Lower accuracy: Inventory data is only updated after each count, so you’re often working with outdated information.
  
• Disrupts operations: To do a full count, you may need to pause sales or close the store, which affects productivity.
  
• Harder to forecast: Without real-time data, it’s tough to know when to restock or how products are performing.
  
• Bigger margin for error: The longer you wait between counts, the more likely you’ll have stock issues due to theft, damage, or miscounts.
  

What Is a Perpetual Inventory System?

A perpetual inventory system tracks your inventory in real-time. Every time you buy, sell, or move a product, the system updates your stock levels automatically. That means you always know exactly how much inventory you do not need to wait for a manual count.

Think of it like this:
A perpetual system is like having a live video feed of your stockroom. You see changes as they happen.
A periodic system, on the other hand, is like taking a photo now and then. You’re guessing what changed based on the last snapshot.

With perpetual inventory, every transaction is recorded as it happens. This gives you better visibility, helps with faster reordering, and reduces the risk of stockouts or overstocking. It also makes it easier to trace products in case of audits or returns.

You’ll still need to do physical counts occasionally, but not as often. These are used to double-check that your records match the actual stock.

Most businesses use barcodes and inventory software to make the process quick and accurate. You scan a product when it’s purchased, sold, or moved. The system logs the transaction, updates stock levels, and ties it to a sales or purchase order.

Perpetual inventory is best for growing businesses, especially those with:

• High sales volume
  
• Multiple locations
  
• Large or complex inventory

Pros and Cons of Perpetual Inventory

Pros

• Real-time tracking: Every sale, purchase, or transfer updates your inventory automatically, so you always know what’s in stock.
  
• Better accuracy: Because transactions are recorded as they happen, there’s less guesswork and fewer mistakes.
  
• Fewer shutdowns: You won’t need to stop operations for full inventory counts as often. Cycle counts are quicker and less disruptive.
  
• Easier forecasting:  You can see what’s selling, what’s not, and reorder on time based on actual data.
  
• Stronger traceability:  You can track products back to specific orders or movements, making audits and returns easier.
  

Cons

• Setup takes time: You need to barcode your products and train your team to scan every transaction.
  
• Requires inventory software: A perpetual system relies on digital tools to work properly.
  
• Upfront cost: You’ll need to invest in barcode scanners and inventory software to get started.
  

Key Differences: Perpetual vs. Periodic Inventory

Here’s how perpetual and periodic inventory systems compare:

Feature	Periodic Inventory	Perpetual Inventory
Tracking frequency	Inventory is updated only during scheduled counts	Inventory is updated in real-time after each transaction
Accuracy	Lower – relies on memory and estimations	Higher – tracks every sale and movement instantly
System requirements	Basic tools like spreadsheets or pen and paper	Needs software and barcode scanners
Operational impact	May require shutting down to count stock	Fewer shutdowns, easier cycle counts
Suitable for	Small businesses with low sales volume	Growing or large businesses with frequent sales
Cost to implement	Low setup cost	Higher setup cost due to tools and software
Reordering	Manual, based on rough estimates	Automated, based on real-time data
Audit and traceability	Harder to trace product history	Easy to trace every product movement

The key takeaway:
If you run a small shop with limited products, periodic inventory may be enough. But as your business grows, the accuracy and visibility of a perpetual system make a big difference.

 Which System Is Right for You?

If you’re just starting and managing a small number of products, the periodic inventory system may work for you. It’s simple, doesn’t need much setup, and gets the job done if your sales volume is low.

But if your business is growing or if you manage lots of products across different locations, a perpetual inventory system is a better choice. It gives you real-time visibility, improves accuracy, and makes tracking and reordering much easier.

Here’s a simple way to decide:

• Choose periodic if you want a low-cost setup and don’t need real-time updates.
  
• Choose perpetual if you want to stay on top of inventory, avoid stockouts, and reduce manual counting.
  

Over time, most businesses outgrow the periodic method. The benefits of real-time tracking and faster decisions with perpetual inventory will save you time, money, and stress.

Conclusion

Inventory control plays a key role in your business performance. Whether you choose periodic or perpetual inventory, the right system depends on how many products you manage, how often you sell, and how much accuracy you need.

The periodic method is simple and affordable, but it works best in small, low-volume setups. The perpetual method gives you better control, live data, and fewer errors, making it ideal for growing businesses with more to track.

As your operations expand, consider switching to a perpetual system. The time and cost you save in the long run often outweigh the setup effort.