Inventory Turnover

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.

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.

Annual inventory analysis:

• 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.