LIFO Inventory Method: Will It Work for Your Shopify Store?

Managing inventory for your Shopify store is important. What are the benefits of the Last In, First Out (LIFO) inventory management system? Should you use it?

Daniël de Jager - Writer for Egnition
By Daniël de Jager
Head and shoulders photo of Michelle Meyer
Edited by Michelle Meyer

Updated July 7, 2023.

When it comes to managing inventory for your Shopify store, it may be tempting to just "wing it" and not keep track of metrics such as sales and cost of goods sold (COGS) to save time. However, spending just a little time on good management practices will go a long way in helping you monitor your inventory, forecast demand, and increase the financial health of the store.

Under the Last In, First Out (LIFO) inventory management method, the cost of the most recent goods added to stock is used to calculate the COGS and total value of stock, even if there was older stock purchased at a different price. In contrast, FIFO inventory management (First In, First Out) uses the cost of the oldest stock to calculate COGS.

LIFO Example:

An example of LIFO is a car dealership stocking a vehicle that cost $10,000 the previous year but now costs $11,000 due to inflation and rising production costs. Vehicles purchased at $10,000 will now be valued at $11,000 as well, both on stock sheets and sales figures.

Why Use LIFO for Your Shopify Store?

LIFO will work for Shopify stores that stand to lose much from stock write-downs, whose inventory costs constantly change, and who want to limit taxes. COGS and net income are usually lower under LIFO, which means your payable income tax is also lower.

However, it's important to note that LIFO is prohibited everywhere except in the USA. Also, LIFO often makes older stock obsolete and unsellable.

» Unsure which inventory management software to implement? Read up on our review of the best inventory management systems for Shopify stores

Recommended Approach for Shopify Stores

Because the only reasonable use cases for a Shopify store to implement LIFO would be for tax reasons and slightly better cash flow, you should consider other options. FIFO combined with automated inventory management works best for most Shopify stores.

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