Expert Insights: The Most Critical Inventory Metrics in DTC

In 2025's volatile DTC landscape, inventory decisions can make or break your brand. Unclear interest rates, shifting trade policies, and unpredictable demand patterns have turned inventory management into a high-stakes balancing act.

But which metrics actually matter when walking the tightrope between stockouts and cash-draining excess inventory?

Dive into this edition of Finaloop's DTC Finance Insider's Club to discover the metrics that separate thriving brands from those leaving money on the warehouse floor.

The question was:

What’s the most important financial metric related to inventory management that DTC founders should focus on to grow smarter?

The Answers:

1) Future-Focused DIO

The most crucial financial metric for DTC founders to monitor is Days Inventory Outstanding (DIO) based on forward-looking 60-day sales velocity, rather than historical data. This forward-looking approach helps prevent both stockouts and overstock situations. With current high interest rates, excess inventory directly impacts your bottom line in two ways: first, through increased carrying costs on inventory-backed loans or lines of credit, and second, through the opportunity cost of cash tied up in slow-moving stock that could be deployed elsewhere in the business. By focusing on forward-looking DIO, founders can optimize their purchasing decisions to maintain just enough inventory to meet demand while minimizing these financing costs.

Colson Myers | Founder & Fractional CFO, Gestalt Strategic Finance

2) Inventory Turnover: The Hidden Growth Lever in DTC

In my opinion, the most important financial metric for Direct-to-Consumer (DTC) founders to focus on for smarter growth is inventory turnover ratio. Here’s why:

Experience

When working with DTC founders, I’ve seen inventory turnover become the defining factor in cash flow and profitability. A founder I consulted reduced their inventory holding period by improving supplier terms and forecasting accuracy, leading to a 20% increase in cash-on-hand. This allowed them to reinvest in marketing and scale faster without external funding.

Observation

High-performing DTC brands consistently maintain optimal inventory turnover ratios. Too slow, and they’re tying up capital in unsold products, risking obsolescence. Too fast, and they risk stockouts, losing sales and customer trust.

Why It Matters

• Cash Flow Efficiency: Inventory turnover directly impacts the working capital cycle.
• Demand Planning: It reflects how well a business aligns inventory levels with market demand.
• Profitability: Stagnant inventory increases storage costs and risks markdowns, reducing gross margins.

A practical benchmark: Aiming for an inventory turnover ratio of 4-8 annually is generally healthy, but this varies by industry and product type. By monitoring this metric and adjusting purchasing, pricing, and sales strategies, DTC founders can grow sustainably and profitably.

Josh Thompson, Kordis

3) CCC is King in DTC

Cash Conversion Cycle (CCC). The CCC measures how efficiently (quickly) money moves through your business. Especially for early stage and bootstrapped brands, cash is a scarce resource and you need to make sure you're using it efficiently. Across the dozens of brands' financials I audited last year, I'd say around 90% had excess cash tied up in their CCC - most commonly as inventory. When you can reduce the amount of cash you have tied up in the CCC, you can instead use that cash for growth initiatives such as marketing. 

Nate Littlewood | Founder & Fractional CFO, Future Ready

4) Mastering Inventory: From Excess to Excellence

Inventory Turnover Ratio (ITR) is a key metric that determines whether a DTC brand is efficiently scaling or suffocating under excess stock. But beyond ITR, brands must strategize to manage inventory risks effectively:

Managing Excess Inventory:

1. Use pricing sensitivity – If customers respond well to discounts, use targeted promotions.
2. Leverage bundling & gifting – Offer gifts with purchase (GWP) or bundle slow-moving SKUs with bestsellers.
3. Strategic liquidation – Utilize outlet sales, flash discounts, or donations (which can also reduce taxable income).

Managing Low Inventory & Stockouts:

1. Know supplier lead times – Understand production timelines and response speed.
2. Assess expedited shipping costs – Calculate the break-even point for fast boats or air freight when demand surges.
3. Forecast more aggressively – Use historical data + market trends to anticipate demand spikes.

A brand’s ability to balance inventory levels effectively is directly tied to profitability, cash flow health, and long-term scalability.

Jordan Benjamin | CEO & Advisor, OmniFi Partners

5) Finaloop's Take:

What I've seen time and time again is that brands aren't breaking down COGS per SKU, which inevitably leads to cross financing and lack of matching between SKU and pricing. It's not necessarily easy to do, but it is the way to go and the path to being fully on top of your unit economics.

Jacob Becker | Head of Ecosystem Education, Finaloop

Need help implementing these strategies for your DTC brand? From real-time bookkeeping for ecommerce business to dedicated ecommerce accounting services, book a short consultancy call with one of Finaloop's ecommerce accounting experts.