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Inventory turnover measures how efficiently a business converts inventory into sales. A high turnover means goods move quickly — less cash tied up in stock and lower carrying costs. Too high can signal stockouts; too low signals excess inventory and capital inefficiency.
The formula
Inventory Turnover = COGS / Average Inventory Average Inventory = (Beginning Inventory + Ending Inventory) / 2 Days Sales of Inventory (DSI) = 365 / Inventory Turnover
With $1.2M COGS and $200k average inventory: Turnover = $1.2M / $200k = 6.0× DSI = 365 / 6.0 = 60.8 days of inventory on hand
Use the same inventory valuation method consistently when comparing periods — FIFO (First In, First Out) values inventory using the cost of the oldest stock first, while LIFO (Last In, First Out) uses the cost of the most recently purchased stock first. Switching methods between periods distorts the turnover trend.
Benchmarks by industry
| Industry | Typical turnover | Typical DSI |
|---|---|---|
| Grocery / Supermarket | 20–30× | 12–18 days |
| Fast fashion / Apparel | 6–12× | 30–60 days |
| Electronics | 6–10× | 36–60 days |
| Automotive parts | 4–8× | 45–90 days |
| Furniture / Home | 3–6× | 60–120 days |
| Industrial/B2B | 2–5× | 73–180 days |
Why turnover matters
Cash flow: Inventory is tied-up cash. $500k in stock at 3× turnover represents 4 months of working capital locked up. At 6× turnover, it's 2 months. The difference can fund a major marketing campaign or buffer a slow season.
Carrying costs: Warehousing, insurance, shrinkage, and obsolescence typically run 20–30% of inventory value annually. Reducing average inventory by $100k saves $20–30k/year in carrying costs.
Stockouts vs overstock: Very high turnover (above industry benchmark) may signal you're selling out too quickly. Very low turnover means excess stock that may become obsolete.
Improving inventory turnover
- Better demand forecasting: Use historical sales data and seasonality patterns to order closer to actual demand.
- Tighter reorder points: Set reorder triggers based on lead time + safety stock, not gut feel.
- ABC analysis: Rank SKUs (Stock Keeping Units) by revenue contribution. A-items (top 20% of SKUs, 80% of revenue) need tight management; C-items can carry lighter stock.
- Faster supplier lead times: Shorter lead times allow lower safety stock.
- Liquidate dead inventory: Run promotions on slow movers before they become write-offs.
Sell-through rate
Sell-through = Units Sold / Units Received × 100%
Sell-through measures how much of what you bought you actually sold in a period. 80%+ is generally healthy. Below 60% suggests over-buying or poor category selection.
Frequently asked questions
What does this calculator do? Calculate inventory turnover ratio, days sales of inventory (DSI), and sell-through rate from COGS and inventory values.
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