What is Inventory Turnover?
Inventory turnover measures how quickly you sell through your stock. Higher turnover means faster-moving inventory, better cash flow, and lower holding costs. Lower turnover suggests overstocking or slow-moving products.
Turnover Benchmarks
Ecommerce: 4-6x annually is typical. Fast-moving consumer goods: 8-12x. Luxury goods: 2-4x. The ideal rate depends on your margins and industry.
Improving Turnover
Reduce slow-moving SKUs, improve demand forecasting, implement just-in-time ordering, run promotions on stagnant inventory, and optimize reorder points.
Formula
Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Days Inventory Outstanding = 365 / Inventory Turnover
Example
Ecommerce business annual figures:
- Cost of Goods Sold: $600,000
- Beginning Inventory: $150,000
- Ending Inventory: $100,000
Average Inventory = ($150K + $100K) / 2 = $125,000
Turnover = $600K / $125K = 4.8x per year
Days = 365 / 4.8 = 76 days average to sell inventory