Inventory turnover is a financial ratio that shows how often a company sells and replaces its inventory over a given period of time. It is calculated by dividing the cost of goods sold (COGS) by the average inventory for the period. A higher inventory turnover indicates that a business is selling products quickly and efficiently, while a lower turnover may suggest overstocking or slow sales.
For ecommerce businesses, managing inventory turnover is a crucial part of ecommerce inventory management and it is super important to avoid overstocking or stockouts, both of which can hurt profitability. A high inventory turnover rate indicates that products are being sold quickly, which helps maintain healthy cash flow and reduces the risk of holding unsold stock. For ecommerce brands, optimizing inventory turnover can lead to lower storage costs, better cash flow, and increased operational efficiency. However, it’s important to strike the right balance, as too high of a turnover rate could lead to stockouts and missed sales. It is all about hitting the right balance.
Read our in-depth article about ecommerce inventory turnover.
Ecommerce Inventory Turnover Formula
Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory
Inventory turnover is calculated by dividing the Cost of Goods Sold (COGS) by the average amount of inventory