Inventory turnover is the clearest gauge of whether your stock is working or just sitting. It tells you how many times you sold through and replaced your inventory in a period, and it exposes two problems at once: overstock, where cash is stuck on shelves, and the thin buffers that lead to stockouts.
Inventory turnover is how many times you sold and replaced inventory in a period. Higher usually means leaner, faster-moving stock. But too high signals you are running thin enough to stock out.
The inventory turnover formula#
Where:
- COGS is cost of goods sold over the period (not revenue, see below)
- Average inventory is
(beginning inventory + ending inventory) ÷ 2, at cost
Use COGS, not sales#
You will see some people divide sales by inventory. Do not. Inventory sits on your books at cost, while sales include your markup, so sales ÷ inventory inflates the ratio. COGS ÷ average inventory compares like with like.
A worked example#
For the year:
- COGS = $1,200,000
- Beginning inventory = $180,000
- Ending inventory = $220,000
First, average inventory:
Average inventory = (180,000 + 220,000) / 2 = 200,000
Then turnover:
Inventory turnover = 1,200,000 / 200,000 = 6.0
You turned inventory 6 times in the year.
Turn that into days of inventory#
Turnover is easier to act on as days:
DIO = 365 / 6 = ~61 days
So on average you are holding about 61 days of inventory. That is a number you can compare directly to your lead times and reorder points.
What's a good inventory turnover ratio?#
There is no universal "good." Your category sets it:
| Business type | Typical turns / year |
|---|---|
| Grocery / perishables | 12–20+ |
| DTC / ecommerce consumer goods | 4–8 |
| Apparel & accessories | 3–6 |
| High-ticket / slow-moving | 1–3 |
A very high ratio can mean you are holding too little, which is great for cash and risky for service level. Read turnover alongside your stockout rate. The goal is lean and in-stock, not lean at any cost.
How to improve inventory turnover#
The levers are the same ones that prevent stockouts, applied with discipline:
- Right-size safety stock. Buffer to real variability, not a flat blanket, so you hold less idle stock.
- Tune reorder points and order quantities. Order the right amount at the right time instead of over-buying.
- Forecast per SKU and channel. Hold less of what is slow and enough of what is fast. A blended view hides both problems.
- Clear dead stock. Stagnant SKUs drag your average inventory up and your ratio down.
See turnover and days-of-inventory per SKU, live
The bottom line#
Inventory turnover = COGS ÷ average inventory, and 365 ÷ turnover turns it into
days on hand. Benchmark against your industry, watch it alongside your stockout rate,
and improve it by tightening reorder points, order quantities, and safety stock per
SKU. Enough Stock computes turnover and days-of-inventory across every channel in
real time, so you can spot the slow and the at-risk SKUs before they cost you.