Inventory is cash. Every unit sitting in a warehouse unsold is money tied up and not working for you. Inventory turnover measures how efficiently you convert stock into sales, and it is one of the most important metrics for any product-based business.
Calculate your inventory turnover with the Inventory Turnover Calculator.
What Is Inventory Turnover?
Inventory turnover ratio = COGS / Average Inventory Value
It tells you how many times you sell and replace your entire inventory over a period. A ratio of 6x means you cycled through your inventory 6 times in a year, or roughly every 2 months.
The inverse is days to sell (DSO): 365 / Turnover Ratio. A ratio of 6x = 61 days of inventory on hand.
What Is a Good Inventory Turnover Rate?
| Rate | Days to Sell | Assessment |
|---|---|---|
| 8x+ | Under 45 days | Excellent (fast-moving goods) |
| 4-8x | 45-90 days | Good for ecommerce |
| 2-4x | 90-180 days | Average, review slow SKUs |
| Below 2x | 180+ days | Poor, cash flow risk |
These benchmarks vary by product type. Fashion and perishables need much higher turnover than furniture or jewellery. Compare against your category average rather than general benchmarks.
Calculating Average Inventory Value
Average inventory = (Opening stock value + Closing stock value) / 2
Use cost price (what you paid for the stock), not selling price. This matches how COGS is measured and gives you a true picture of capital tied up.
The Reorder Point
Knowing when to reorder is as important as knowing your turnover rate:
Reorder Point = (Average daily sales x Lead time in days) + Safety stock
If you sell 10 units per day, your supplier takes 21 days, and you want 7 days of safety stock, your reorder point is: (10 x 21) + (10 x 7) = 280 units
Order a new batch when your stock reaches 280 units.
Dead Stock: What to Do About It
Dead stock is inventory that has not moved in 90+ days. Signs include:
- Seasonal items past their window
- Products made obsolete by newer models
- Over-purchased lines based on optimistic forecasts
Options for dead stock:
- Price reduction or bundle deals to clear the line
- Liquidation to a bulk buyer (typically 10-30 cents on the dollar)
- Return to supplier if they accept it (usually a restocking fee applies)
- Donation for tax credit
- Disposal as a last resort
Amazon FBA sellers should monitor the Inventory Age report in Seller Central. Items stored over 365 days incur long-term storage fees that can exceed the product value.
How to Improve Inventory Turnover
- Tighten your minimum order quantities — ordering less more frequently reduces average inventory at the cost of higher per-unit cost
- Use data-driven forecasting — base reorder quantities on actual sales velocity, not gut feel
- Identify and kill dead SKUs — regularly audit your range and discontinue slow-moving lines
- Implement just-in-time ordering where lead times allow
- Improve product listing quality — sometimes low turnover is a conversion problem, not a demand problem
Track your ratios monthly with the Inventory Turnover Calculator to catch deteriorating performance before it becomes a cash flow crisis.