How to Track Materials Inventory for a Handmade Business (Without Losing Your Mind) – Especially If You’re Using Spreadsheets

If the words “track your materials inventory” make your eyes glaze over and your shoulders creep up toward your ears … you are not alone.

Inventory (in general) is one of those handmade business topics that feels simple … until you actually try to do it.

When it comes to tracking materials inventory, suddenly you’re staring at a pile of yarn receipts (or paint tubes, beads, fabric, clay, paper ….) wondering:

• “Do I REALLY have to track all this?”
• “What do I tract, exactly?”
• “And, why does this feel like it needs a degree in Spreadsheet Wizardry?”

Let’s make this all make sense.

In this post, I’m going to walk you through:

• what “tracking materials inventory” really means for makers
• the information you actually need to track (without the overwhelm)
• why materials inventory spreadsheets get complicated … fast
• and how to make it easier if you do want to use spreadsheets
• [and we’ll talk about finished items inventory tracking in the next post]

No jargon spiral. No scary IRS energy. Just practical, maker-friendly clarity.

Short on time? This post will take roughly 9 minutes to read. If you’re short on time, just skim through the headings.

Where This Fits in the Inventory + COGS for Handmade Businesses Series

This is Part 3 of an 8-part Inventory & Cost of Goods Sold series:

• Part 1: What Inventory Is (and why it matters)
• Part 2: How Inventory Works (and why it matters)
• Part 3: How to Track Materials Inventory (this post)
• Part 4: How to Track Finished Items Inventory (coming 1/16/2026)
• Part 5: Coming soon
• Part 6: Coming soon
• Part 7: Coming soon
• Part 8: Coming soon
• BONUS POST: Year-End Physical Inventory Tips

What “Inventory” Means for Handmade Businesses

There’s a lot of mixed messaging out there about whether handmade business “need” to track inventory.

Here’s the calm truth, based on 30+ years of bookkeeping work:

👉 If you make things to sell, you’re considered a manufacturer.

And manufacturers typically:

• keep materials and supplies on hand (that’s your yarn, fabric, clay, resin, notions, packaging, etc.)
• treat those materials and supplies as inventory
• deduct inventory costs when products are sold, as Cost of Goods Sold (not when you buy the supplies)

That last bullet is the part that causes the most confusion.

Because it creates this rule of thumb:

👉 Buying supplies isn’t automatically a deduction.
Selling the finished item is what turns those supplies into a deduction.

So, for tax purposes, (and for you to know how much money you have sitting on the shelf) you need a way to track:

• what you bought
• what you used
• what’s left

That’s the whole point of materials inventory tracking at it’s simplest.

What You Actually Need to Track

When people hear “inventory,” they often imagine a simple list.

But inventory isn’t just a list — it’s a running system of increases and decreases over time that keeps tabs of the money sitting on your shelf.

When you BUY materials, you need to track:

• Date purchased
• What you bought (item details like brand/name + color)
• How many you bought (skeins, yards, packs, etc.)
• Quantity per unit (yards/ounces/grams/meters per skein, items per pack, etc.)
• Total quantity purchased (units x quantity per unit)
• Price per unit (actual cost + shipping + sales tax MINUS any discounts)
• True cost per unit (what it really costs once everything is included)
• Total cost + quantity added to inventory
• Retail replacement cost (so you’re not pricing based on “sale yarn math”)

These are the things that increases your materials inventory balance.

Over time, you also need to track:

• What you used (for finished items)
• What’s left (running balance)
• What left your business (personal use, donated, damaged, etc.)
• And then of course, your actual Finished Items Inventory (which we’ll talk about in the next blog post)

This is where inventory tracking stops being “cute and simple” and becomes …. real . bookkeeping . work.

Why Inventory Tracking Feels Like a Lot

Inventory tracking is overwhelming for one main reason….
👉 It’s ongoing.
It’s not a “set it up once and forget it” situation.

Inventory is a cycle (that starts all over again every year):

• you buy materials (inventory goes up)
• you use materials/finish items (inventory goes down)
• you need totals for the year (helloo, tax prep)

And yes … receipts matter. A lot. Because inventory isn’t based on vibes — it’s based on what you can prove.

Can You Track Inventory With Spreadsheets?

Yup. You can.

But here’s the truth …
👉 Spreadsheets work great just for tracking purchases – all by themselves. A basic purchase tracker might only need a half dozen columns.

But when you switch from just tracking purchases to tracking inventory (purchases + units + cost per unit + usage + running balances + totals + retail replacement cost) is where things get complicated … fast.

That’s when a single spreadsheet can turn into multiple spreadsheets (saved in different locations) OR it can turn into a 25-column beast with formulas you have to create (hoping they’re right), and you’re afraid to touch.

And just so you know — this is exactly why I built my inventory spreadsheets the way I did (because you should not have to become a spreadsheet wizard to track yarn)!

The Math That Makes Inventory Tracking Tricky

Let’s do a real-life example – because this is where makers start muttering either, “I hate this” OR “Is she EVER going to give me an example”?

Example: You buy yarn with shipping and tax

You buy:

• 15 skeins of cotton yarn
• Sale price: $2.99 per skein (regular price $3.69)
• Sales tax: 6%
• Shipping: $11.95

To get your true cost per skein, you have to spread shipping and tax across each item.

• Shipping per skein: $11.95 ÷ 15 = $0.80
• Sales tax per skein (sale price): $2.99 × 6% = $0.18
• True cost per skein: $2.99 + $0.80 + $0.18 = $3.97(rounded)

Now, you also need retail replacement cost, because “sale price” doesn’t help you price your products when the sale disappears:

• Sales tax per skein (retail price): $3.69 × 6% = $0.22
• Retail replacement cost per skein: $3.69 + $0.80 + $0.22 = $4.71(rounded)

Now imagine doing this repeatedly:

• for multiple suppliers
• for different discounts
• with different shipping amounts
• while also tracking how much you use and what’s left

And if you make amigurumi and only use partial skeins, well there’s more math to figure out a cost per unit (yards/ounces/grams/meters per skein, items per pack, etc.).

That’s why inventory tracking is not “just a list.”

Spreadsheets Aren’t the Problem. Random Spreadsheets Are.

Spreadsheets can absolutely work for inventory … if they’re built for inventory.
As a matter of face, some people will tell you that spreadsheets are the way to go, because you can do anything with spreadsheets and they are free.

The trouble starts when you try to track materials + usage + balances + cost per unit + retail replacement costs in a spreadsheet that was basically a fancy list. That’s how makers end up with multiple spreadsheets or a 25-column beast (full of formulas they have to create) …. and a migraine.

So I built my Materials Inventory (and Finished Items Inventory) spreadsheets to do the job on purpose — meaning the tracking pieces you actually need are already there, and the formulas are already built in.

You track what you buy and what you use – the spreadsheet does the rest … without reinventing the wheel every time.

Where can you get them (without building your own spreadsheet monster)

The Materials Inventory (and Finished Items Inventory) spreadsheets are included inside my 10-Minute Bookkeeper spreadsheet system. If you want to see exactly what’s indie (and how it works), you can take a peek here.

The Bottom Line

Inventory tracking doesn’t have to be perfect to be useful — but it does need to be:

• consistent
• intentional
• and set up in a way you can actually maintain

If you’re using spreadsheets, the goal isn’t to create a spreadsheet masterpiece. It’s to create a system that helps you track:

• what you bought
• what you used
• what you have left
• and what those materials actually cost you — so you know how much money you have sitting on the shelf

From what I’ve read, keeping detailed inventory counts and records is a pretty controversial topic in the handmade business community.  There are even some disagreements about whether the IRS even requires makers or crafters to track inventory and cost of goods sold or not.

I could tell you to go read about this starting on page 13 of IRS publication 538 (and you can if you want to), but I don’t want you to overdose on headache meds and alcohol!  Instead, I’ll tell you……

Inventory is a series of increases/additions (what we buy) and decreases/deductions (what we use).  We have to keep a running balance of what’s there, and we have to have periodic totals for tax purposes, such as:

• What we had BEFORE we became an official business
• The amount we purchased each year
• How much we used each year
• And, we need receipts for EVERYTHING that show exactly what we bought

FAQ (Because I’m Sure You’re Probably Wondering …)