Inventory Turnover Ratio: Formula, Benchmarks, and How to Improve

What Is Inventory Turnover Ratio?

Inventory turnover measures how many times you sell and replace inventory in a period. It answers: How efficiently is my capital working?

A turnover of 6 means you sell through your entire inventory 6 times per year, or roughly every 2 months.

The Inventory Turnover Formula

Standard Formula

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory

Example Calculation

Annual COGS: $500,000
Beginning Inventory: $80,000
Ending Inventory: $70,000
Average Inventory: ($80,000 + $70,000) / 2 = $75,000

Turnover = $500,000 / $75,000 = 6.67 turns per year

Days Inventory Outstanding (DIO)

Convert turnover to days:

Days of Inventory = 365 / Turnover Ratio
DIO = 365 / 6.67 = 55 days

This means inventory sits for 55 days on average before selling.

Industry Benchmarks

Industry	Typical Turnover	Days on Hand
Fast fashion	8-12	30-45 days
Consumer electronics	8-12	30-45 days
General apparel	4-6	60-90 days
Home goods	4-6	60-90 days
Specialty/niche	2-4	90-180 days
Luxury goods	1-3	120-365 days

For Shopify/Amazon sellers: Aim for 6-8 turns minimum. Top performers hit 10-12.

Why Inventory Turnover Matters

Cash Flow Impact

Low turnover = capital trapped in unsold inventory. If you have $100,000 in inventory turning 4x/year vs. 8x/year:

Turnover	Inventory Needed	Capital Freed
4x	$100,000	-
8x	$50,000	$50,000

Doubling turnover frees $50,000 for growth, marketing, or new products.

Storage Costs

Slow-moving inventory costs:

• Warehouse space
• FBA storage fees (especially long-term)
• Insurance
• Risk of obsolescence

Opportunity Cost

Money in slow inventory can't fund fast movers or new opportunities.

How to Improve Inventory Turnover

Strategy 1: Better Demand Forecasting

Accurate forecasting prevents:

• Overordering slow movers
• Understocking fast movers
• Seasonal miscalculations

Strategy 2: Reduce Lead Times

Shorter lead times mean smaller orders and faster response:

• Negotiate with suppliers
• Consider domestic vs. overseas
• Use air freight for critical items

Strategy 3: Implement ABC Analysis

Focus on A items that turn fastest. Accept lower turnover on C items but minimize their inventory.

Strategy 4: Liquidate Dead Stock

Products sitting 6+ months are dragging down turnover:

• Bundle with fast movers
• Discount aggressively
• Sell to liquidators
• Donate for tax benefit

Strategy 5: Right-Size Safety Stock

Excessive safety stock kills turnover. Calculate based on actual demand variability, not fear.

Strategy 6: Optimize Reorder Points

Order smaller quantities more frequently when:

• Lead times allow
• Supplier minimums are low
• Storage costs are high

Per-SKU vs. Overall Turnover

Overall turnover hides individual performance. Calculate per SKU:

SKU	Annual Sales	Avg Inventory	Turnover
SKU-A	$100,000	$8,333	12
SKU-B	$50,000	$25,000	2
SKU-C	$30,000	$10,000	3

SKU-B is dragging down your overall performance. Either improve its turnover or reduce inventory allocation.

Turnover by Channel

Multi-channel sellers should track turnover separately:

Location	Turnover	Action
FBA	10	Performing well
Warehouse	4	Needs improvement
3PL	6	Acceptable

Low FBA turnover means long-term storage fees. Low warehouse turnover means tied-up capital.

The Turnover-Stockout Tradeoff

Pushing turnover too high causes stockouts. Find the balance:

• Too low (< 4): Capital inefficiency, storage costs
• Sweet spot (6-10): Healthy cash flow, adequate availability
• Too high (> 12): Frequent stockouts, lost sales, unhappy customers

Track turnover alongside stockout rate to find your optimal point.

Tracking Turnover Over Time

Single calculations are snapshots. Track trends:

Q1: 5.2 turns
Q2: 5.8 turns
Q3: 6.4 turns
Q4: 7.1 turns

Improving trend = operational efficiency improving.

ReplenishRadar calculates turnover automatically per SKU and overall, tracking trends across your Shopify and Amazon inventory.

See your inventory turnover by SKU. Start a free trial and identify which products need attention.

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Related Reading:

• Inventory ABC Analysis Guide
• Working Capital and Inventory Management
• Safety Stock Calculation Guide