What is inventory turnover ratio?

Inventory turnover measures how many times you sell through your inventory in a given period. It is calculated by dividing cost of goods sold (COGS) by average inventory value. A ratio of 6 means you sell and replace your inventory six times per year.

How do you calculate days sales of inventory?

Divide 365 by your inventory turnover ratio. If turnover is 6, you hold inventory for about 61 days on average. This tells you how many days' worth of sales you keep in stock.

How can I improve inventory turnover?

Identify and discount slow-moving items. Use demand forecasting to reduce overordering. Negotiate smaller, more frequent deliveries with suppliers. Drop products with consistently low sell-through rates.

What is the difference between inventory turnover and sell-through rate?

Inventory turnover measures how often you replace your entire inventory over a period. Sell-through rate measures the percentage of inventory received that was actually sold during that period. A sell-through rate of 80% means you sold 80 of every 100 units you stocked.

How does excess inventory hurt my business?

Excess inventory ties up cash that could be used elsewhere, increases storage and insurance costs, and risks becoming obsolete or unsellable. For perishable goods, overstocking leads to waste. Even for durable products, holding costs typically run 20-30% of inventory value per year.

How do I calculate average inventory?

Add your beginning inventory value to your ending inventory value and divide by two. For a more accurate number, average the inventory value at the end of each month across the period. Using just start and end values can be misleading if inventory fluctuates during the year.

Back to Calculators

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Inventory Turnover Calculator

What is a good inventory turnover ratio? Inventory turnover measures how many times your business sells and replaces its stock in a given period. The formula is: Inventory Turnover = Cost of Goods Sold / Average Inventory Value. A higher ratio means you are selling inventory quickly; a lower ratio means stock is sitting on shelves and tying up cash.

A related metric is Days Sales of Inventory (DSI), which tells you how many days it takes to sell your average inventory: DSI = 365 / Turnover Ratio. The ideal ratio varies significantly by industry, which is why benchmarking matters.

What this means for your business

Good inventory turnover benchmarks by industry: grocery stores target 14-20x, restaurants 12-16x, e-commerce 6-10x, general retail 4-6x, and manufacturing 4-8x. Carrying inventory costs roughly 25% of its value per year in storage, insurance, depreciation, and opportunity cost. If your ratio is below your industry benchmark, you may be overstocking or carrying dead inventory.

Inventory Turnover Calculator

See how fast your inventory sells and what it costs to hold.

(Annual)

Average Inventory Value

Industry (for benchmarks)

What Is Inventory Turnover and How Do You Calculate It?

Inventory turnover measures how many times your business sells and replaces its entire inventory over a period, usually a year. If your turnover is 6, you sell through your full stock six times annually. A higher ratio means products move quickly and cash is not trapped on shelves. A lower ratio may signal overstocking, weak demand, or pricing problems. For most retail and ecommerce businesses, inventory turnover is one of the most important metrics to track because it directly determines how much working capital you need.

Key Terms Defined

Inventory Turnover Ratio: The number of times your inventory is sold and replaced in a given period. Higher is generally better, though it depends on your industry.
Days Sales of Inventory (DSI): The average number of days it takes to sell your entire inventory. Lower DSI means faster sales. Formula: DSI = 365 / Inventory Turnover Ratio.
Cost of Goods Sold (COGS): The direct cost of producing or purchasing the products you sell, including materials, manufacturing, and freight.
Average Inventory Value: The average dollar value of inventory you hold over the period. Calculate as: (Beginning Inventory + Ending Inventory) / 2.
Carrying Cost: The total annual expense of storing unsold inventory, including warehousing, insurance, depreciation, and the opportunity cost of tied-up capital. This typically runs 20-30% of your average inventory value per year.

The Formula

Inventory Turnover = Cost of Goods Sold / Average Inventory Value

For example, if your annual COGS is $240,000 and your average inventory value is $40,000, your turnover is 6.0. That means you sell through your stock every 61 days (365 / 6).

How to Use This Calculator

Enter your annual Cost of Goods Sold. Pull this from your profit and loss statement or accounting software.
Enter your average inventory value. If you do not know the average, use the value from your most recent balance sheet.
Review your turnover ratio. The calculator shows how many times you turn inventory annually and your DSI.
Check your carrying cost estimate. See how much your unsold inventory is costing you each year.
Compare to industry benchmarks. Use the table below to see where you stand.

Industry Benchmarks

| Industry | Typical Turnover | Target DSI | |----------|-----------------|-----------| | Grocery / Perishables | 14-20x | 18-26 days | | Restaurant / Food Service | 12-16x | 23-30 days | | E-commerce (general) | 6-10x | 37-61 days | | Retail (general) | 4-6x | 61-91 days | | Specialty / Luxury Retail | 2-4x | 91-182 days |

A Real-World Example

A retail boutique has $180,000 in annual COGS. Beginning inventory was $50,000 and ending inventory was $40,000, so average inventory is $45,000. Turnover = $180,000 / $45,000 = 4.0, with a DSI of 91 days.

That is on the lower end for retail. At a 25% carrying cost, the boutique is spending $11,250 per year just to hold inventory. If the owner can reduce average inventory to $30,000 (turnover of 6.0, DSI of 61 days), carrying cost drops to $7,500, freeing $15,000 in working capital and saving $3,750 annually.

How to Improve Inventory Turnover

Identify dead stock. Run reports to find items that have not sold in 90+ days. Discount or liquidate them to free up cash.
Order smaller quantities more frequently. This reduces the capital sitting on your shelves and lowers carrying costs.
Negotiate shorter supplier lead times. Faster delivery means you can carry less safety stock.
Use demand forecasting. Track seasonal patterns and adjust orders before slow periods hit. Do not restock winter items in March.
Test price points. Items priced too high sit on shelves. Sometimes a small price reduction dramatically increases velocity.
Drop underperforming SKUs. Focus your shelf space and cash on products that actually move.

When High Turnover Is a Problem

Very high turnover can mean you are running too lean. If you frequently stock out, you lose sales and frustrate customers. The goal is a healthy balance between efficiency and availability. Track your stockout rate alongside turnover to find the right balance for your business.

What This Means for Your Business

Inventory is cash sitting on a shelf. Every dollar in unsold product is a dollar that cannot cover payroll, rent, or growth. Improving your turnover from 4x to 6x on $45,000 of average inventory frees up $15,000 in working capital without increasing revenue.

Your inventory turnover directly affects your cash flow. Use the Cash Flow Forecast to see how improving turnover frees up working capital across the year. If your margins feel thin despite decent revenue, check your COGS and then your turnover. The problem may not be pricing: it may be what is sitting on your shelves.