Your inventory turnover ratio tells you how many times you sell through and replace your stock in a period. High turnover means cash isn't sitting on shelves; low turnover means money — and storage — tied up in product that isn't moving.
The inventory turnover formula
Inventory turnover = COGS ÷ Average inventory
Use cost of goods sold over the period (not revenue — both the top and bottom should be at cost), and average inventory = (beginning + ending inventory) ÷ 2. You can also compute it in units: units sold ÷ average units on hand.
Worked example
COGS for the year is $240,000; average inventory at cost is$40,000. Turnover = 240,000 ÷ 40,000 = 6 — you sell through your stock six times a year, roughly once every two months.
What's a good ratio?
It depends on the category — perishables and fast fashion turn much faster than furniture. As a rule: higher is healthier, but too high can mean you're constantly nearly out and losing sales to stockouts. The aim is high turnover without running dry.
Turnover and days of inventory
Flip turnover into days and it's easier to feel:
Days of inventory = 365 ÷ Inventory turnover
A turnover of 6 = about 61 days of inventory on hand.
How to improve turnover
- Order to demand — buy based on sales velocity, not gut feel.
- Clear slow movers — bundle or discount dead stock to free up cash.
- Right-size safety stock — enough buffer to avoid stockouts, not so much it drags turnover (see safety stock).
- Focus on your best SKUs — use ABC analysis to prioritise.
See turnover per product
Foreshelf reads your sales history and flags slow movers and overstock so you can lift turnover where it counts — without tipping fast sellers into stockout.