Inventory Turnover Calculator

Inventory turnover measures how many times you sell through your average stock in a period. A turnover of 4 over a year means the stock you hold, on average, sells and is replaced four times, so each product sits for about three months before a customer buys it.

For a brand that buys stock ahead of demand, that's the length of time your cash is on the shelf instead of in the bank. The calculator gives the turnover, the days of stock on hand and the average inventory both figures are built from.

How to calculate inventory turnover

The calculator uses three formulas:

Average inventory = (inventory at the start + inventory at the end) ÷ 2

Inventory turnover = cost of goods sold ÷ average inventory

Days of stock on hand = days in the period ÷ inventory turnover

• Cost of goods sold is what the products you sold in the period cost you. If you don't have it, the COGS calculator works it out from your stock and purchases.
• Inventory at the start and end must be valued at cost, the same basis as COGS. Never at retail price.
• Days in the period is 365 for a year or about 90 for a quarter. Turnover for a quarter is naturally a quarter of the annual figure, so compare like with like.

Inventory turnover worked example

These are the calculator's default inputs, for one year. Change them to your own numbers above.

This store holds about three months of stock. If its supplier lead time is six weeks, roughly half of that is cover it needs and half is cash it could release.

How to read your result

There's no universal good turnover. It depends on what you sell and how long your supplier takes. Read your result against your own business:

• Against lead time. Days on hand should comfortably exceed your reorder lead time plus a safety margin. Much more than that is cash parked on a shelf; less is a stockout waiting to happen.
• Per product, not just store-wide. A store-wide turnover of 4 can hide a bestseller turning 12 times and a slow line turning once. The slow line is where your cash is stuck.
• Against seasonality. A turnover from a year that includes a stock-up before the holidays reads differently from one that doesn't. Quarterly figures show the pattern a yearly one smooths over.
• Over time. Falling turnover while sales hold steady means inventory is growing faster than demand. That's the early sign of over-ordering.

What moves inventory turnover

Turnover rises when you sell more of what you hold, or hold less of what you sell.

1. Order closer to demand. Smaller, more frequent orders lower average inventory. The trade-off is a higher unit cost or more freight, so check both against the cash released.
2. Clear slow stock deliberately. A slow line that sits for a year costs storage and ties up cash. Pairing it with a bestseller as a cart offer or a bundle moves it without a site-wide discount.
3. Cut the long tail. Variants that rarely sell still need stock. Trimming them raises turnover across the range.
4. Sell more of the fast movers. Better product pages and higher conversion on your bestsellers raise COGS against the same inventory.

Common inventory turnover mistakes

• Dividing revenue by inventory. It overstates turnover by your markup. Use COGS.
• Valuing stock at retail. It understates turnover. Inventory and COGS must both be at cost.
• Using one inventory reading. A single month-end figure can catch you just before or just after a big delivery. Average at least the opening and closing values, or every month-end in the year if you have them.
• Chasing a benchmark. A turnover figure from another category says nothing about yours. Your lead time and your cash position set the target.

Where to go next

Slow stock is often a presentation problem as much as a buying one. Our Gameplan gives you five upsell offers for your own products, ranked by what to build first, for $9, and a cart offer is one of the ways to move a slow line. To see what your stock costs feed through to margin, try the gross margin calculator, or browse all our ecommerce calculators.