Inventory turnover ratio: how fast your stock actually sells
Inventory turnover tells you how many times you sell through your stock in a period. A low number means cash is sitting on shelves as product. A very high number can mean you keep running out. Either way, it is one of the quickest health checks for a shop that holds physical stock.
The formula
Inventory turnover = cost of goods sold for the period ÷ average inventory value (at cost)
Use cost on both sides, not retail price, so the ratio is not inflated by your markup. Average inventory is usually the starting value plus the ending value, divided by two.
Average inventory = (starting inventory + ending inventory) ÷ 2
Turn it into days
Most sellers find days easier to picture than a ratio.
Days of inventory = days in the period ÷ inventory turnover
Worked example
Illustrative figures only.
| Line | Amount |
|---|---|
| Inventory at cost on January 1 | $2,400 |
| Inventory at cost on December 31 | $3,200 |
| Average inventory | ($2,400 + $3,200) ÷ 2 = $2,800 |
| Cost of goods sold for the year | $11,200 |
| Inventory turnover | $11,200 ÷ $2,800 = 4.0 |
| Days of inventory | 365 ÷ 4.0 ≈ 91 days |
This shop sells through its stock about four times a year, so a typical item waits roughly three months before it sells.
What is a good number?
There is no single right answer, because it depends on the product. Fast-moving consumables usually turn much more often than seasonal décor or high-ticket items. The more useful comparison is your own shop over time and between your own products. If turnover drops quarter after quarter, money is getting tied up. If one product turns twice a year while the rest turn six times, that product deserves a closer look.
Check it per product, not only shop-wide
A shop-wide ratio can hide problems. A few bestsellers can make the average look healthy while slow items quietly eat cash and storage space. Work out turnover for each SKU, or at least each product line, and sort from slowest to fastest.
How to improve turnover
- Order smaller, more often for slow movers, and set reorder points based on real sales speed. Our reorder point guide shows the math.
- Bundle or discount slow stock before it goes stale, then do not reorder it at the same depth.
- Know your true product cost so discounts do not dip below break-even. See how to calculate COGS and the break-even guide.
- Watch stockouts on fast movers. Very high turnover with frequent sellouts means lost sales, so it can be worth holding a little more of those items.
Make it a monthly habit
Record ending inventory at cost each month next to your monthly P&L, and turnover becomes a two-minute calculation. Educational content only, not financial or tax advice.
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SellerSheetKit is not affiliated with Etsy, Shopify, or Amazon. Fee figures are summarized from official sources on the date above and can change; verify against your seller account. Educational content only — not tax, legal, or accounting advice.