#Turnover number how to#
Once you know how to calculate inventory turnover ratio, the next step is understanding what a high turnover rate versus a low turnover rate means, and what the ideal inventory ratio is so you can create an action plan on how to improve the higher inventory turnover ratio. How to analyze inventory turnover ratioįully understanding inventory turnover can provide invaluable insight into how your ecommerce business manages costs, how sales initiatives are performing, and how you can further optimize inbound and outbound logistics workflows. If you sell 1,000 units over a year while having an average of 200 units on-hand at any given time during that year, your inventory turnover rate would be 5. Inventory turnover = number of units sold / average number of units on-hand
You can also calculate your inventory turnover ratio by looking at units, rather than costs: Inventory turnover = COGS / Average Inventory Valueįor example, if your COGS was $200,000 in goods last year, and your average inventory value was $50,000, your inventory turnover ratio would be 4. Here’s the simple inventory turnover formula: Divide the cost of goods sold by your average inventory.Identify cost of goods sold (COGS) over the accounting period.To calculate inventory turnover, complete the following 3 steps: How to calculate inventory turnover ratio Understanding the average inventory turnover is a critical measure of business performance, cost management, and sales, is inversely proportional to days in sales inventory and can be benchmarked against other companies in a given industry. Inventory turnover is measured by a ratio that shows how many times inventory is sold and then replaced in a specific time period. Whether you store your products yourself or partner with a 3PL, understanding the data around your inventory and operations can help you reduce shipping costs, increase efficiency, and maximize cash flow. Managing inventory effectively and efficiently is vital to the success ecommerce brands.
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