What Inventory Turnover Measures
Inventory turnover tells you how many times per year you sell through your entire stock. It is the single best indicator of whether you are carrying too much inventory (tying up cash) or too little (risking stockouts).
A turnover ratio of 6, for example, means your average inventory sells and gets replaced six times a year - roughly every 61 days.
The Formula
Inventory Turnover Ratio= Cost of Goods Sold ÷ Average Inventory Value
Days Sales of Inventory (DSI)= 365 ÷ Turnover Ratio
Use COGS rather than revenue to keep the comparison apples-to-apples - both the numerator and denominator are measured at cost.
Benchmarks by Vertical
| Industry | Typical Turnover | DSI Range |
|---|---|---|
| General E-commerce | 4 - 8 | 46 - 91 days |
| Apparel & Fashion | 4 - 6 | 61 - 91 days |
| Electronics | 6 - 10 | 37 - 61 days |
| Food & Grocery | 12 - 20 | 18 - 30 days |
| Health & Beauty | 4 - 8 | 46 - 91 days |
These are ballpark ranges. Your ideal number depends on lead times, supplier reliability, and how seasonal your catalog is.
What Good vs. Bad Turnover Means
High turnover (good) - You sell through inventory quickly, keep holding costs low, and free up cash for growth. The risk is ordering too lean and running out.
Low turnover (bad) - Capital is locked in slow-moving stock. Holding costs pile up, products age, and markdowns become inevitable. It often signals overbuying or weak demand for certain SKUs.
The sweet spot is a turnover rate that keeps stock available for customers without excess sitting in the warehouse.
How to Improve Turnover
- Use demand forecasting - Order based on predicted sales, not gut feel. See how ReplenishRadar forecasts demand.
- Set reorder points per SKU - Trigger purchases only when stock drops to the right level, not on a fixed calendar.
- Right-size each order - Ordering too much drags turnover down; too little means constant reorders. The EOQ calculator finds the batch size that balances ordering and holding costs.
- Identify and clear dead stock - Run regular reviews of items with very low turnover. Bundle, mark down, or liquidate before carrying costs eat the margin.
- Negotiate shorter lead times - Faster replenishment means you can hold less safety stock while keeping fill rates high.
- Track days of supply - Pair turnover with a days-of-supply calculation to know exactly when each SKU runs out.