What is Inventory Turnover?
Inventory turnover measures how many times you sell and replace your inventory over a period. Higher turnover means products are selling quickly; lower turnover means products sit longer before selling.
Full guide → Inventory Turnover Benchmarks by Category
An inventory turnover of 6x means you sell your entire inventory six times per year, or roughly every two months.
Why Inventory Turnover Matters
Inventory ties up cash. Products sitting in a warehouse represent money you can't use for growth. High turnover means efficient capital use. Low turnover might indicate overstocking, obsolete products, or weak demand.
Different industries have different benchmarks. Grocery stores might turn 15x+ annually. Furniture stores might turn 4x. Compare against your industry.
Improving Inventory Turnover
Improve demand forecasting to order the right quantities. Clear slow-moving inventory with promotions. Negotiate shorter lead times with suppliers. Consider dropshipping for long-tail items. Analyze turnover by SKU to identify problems.
Formula
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Days Inventory Outstanding = 365 ÷ Inventory Turnover
Higher turnover = faster-moving inventory
Example
Your ecommerce company analyzes annual inventory performance:
- Cost of Goods Sold: $600,000
- Beginning inventory: $80,000
- Ending inventory: $120,000
- Average inventory: $100,000
Inventory Turnover = $600,000 ÷ $100,000 = 6x
You sell through your entire inventory 6 times per year, or roughly every 2 months.