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Inventory turnover

Inventory turnover is the number of times a store sells and replaces its average stock over a period such as a year.

How it works

Turnover compares the cost of what the store sold with the stock it held on average over the same period. A higher figure means goods leave faster. A low one means money sits in goods that may become dead stock; a very high one can mean too little stock and missed sales. There is no single benchmark: fast- and slow-moving categories turn at different rates, so compare turnover only within one industry.

Turnover is a warehouse metric: it needs cost of goods sold and stock levels over time. An ad account has no stock levels. It only sees whether each product is marked as in stock. Our articles on dead stock in e-commerce and sell-through rate and other assortment KPIs show where the warehouse view and the ad view part ways.

Formula

Cost of goods sold for the period ÷ average inventory at cost

Ways to calculate

  • At cost: cost of goods sold ÷ average inventory at cost, where average inventory = (opening stock + closing stock) ÷ 2. Shopify’s guide uses it.
  • At selling price: net sales ÷ average inventory at selling price. According to Wikipedia, the cost version is more realistic, though some industry data providers use sales.
  • In days: 365 ÷ turnover gives the average number of days to sell the stock.

Example

Example store, not client data.

Over a year, the tableware shop sells goods for 2,160,000. At a 35% gross margin, those goods cost it 1,404,000. Stock at cost is 300,000 at the start of the year and 324,000 at the end, so average inventory is 312,000. Inventory turnover = 1,404,000 ÷ 312,000 = 4.5, so the stock takes 365 ÷ 4.5 ≈ 81 days to sell.

Not to be confused with

  • Sell-through rate — the share of the stock received in a period that sold. It is a percentage, while turnover is a number of times.

Right and wrong readings

  • Wrong: “Revenue 2,160,000 ÷ stock 312,000 = 6.9 turns.” Right: this divides selling prices by cost prices. With cost on both sides, turnover is 4.5.
  • Wrong: “A product with no sales from ads is dead stock.” Right: turnover counts all sales against the stock held. An ad account sees neither the stock nor the sales it does not attribute to ads.

Sources