The Stock Turnover Ratio (STR) is a measure of how often a company’s inventory is sold and replaced within a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory for the period. A higher STR indicates that the company is selling inventory at a faster rate, which is generally a good sign for an ecommerce business that wants to maintain low storage costs and avoid overstocking.
For ecommerce businesses, the STR is a vital indicator of inventory efficiency. A high STR means that the business is managing its stock effectively, avoiding excess inventory, and minimizing storage costs. On the other hand, a low STR could indicate poor sales performance or overstocking, leading to higher storage fees and reduced profitability. By focusing on improving STR through better demand forecasting, supply chain management, and sales strategies, ecommerce businesses can reduce waste and increase profitability. In short, it is a top ecommerce inventory management metric.
Read our in-depth article on ecommerce stock turnover ratio.
Stock Turnover Ratio Formla
Stock Turnover Ratio = COGS / Average Inventory
You can calculate your Stock Turnover Ratio by dividing your Cost of Goods Sold by your average inventory.