# Inventory Turnover Ratio

## Quick Definition

How many times a company sells and replaces its inventory during a period, measuring inventory management efficiency.

## What is Inventory Turnover?

Inventory turnover measures how quickly you sell through your stock. Higher turnover means faster-moving inventory, better cash flow, and lower holding costs. Lower turnover suggests overstocking or slow-moving products.

## Turnover Benchmarks

Ecommerce: 4-6x annually is typical. Fast-moving consumer goods: 8-12x. Luxury goods: 2-4x. The ideal rate depends on your margins and industry.

## Improving Turnover

Reduce slow-moving SKUs, improve demand forecasting, implement just-in-time ordering, run promotions on stagnant inventory, and optimize reorder points.

## Formula

Inventory Turnover = Cost of Goods Sold / Average Inventory  
Average Inventory = (Beginning Inventory + Ending Inventory) / 2  
Days Inventory Outstanding = 365 / Inventory Turnover

## Example

Ecommerce business annual figures:

- Cost of Goods Sold: $600,000  
- Beginning Inventory: $150,000  
- Ending Inventory: $100,000

Average Inventory = ($150K + $100K) / 2 = $125,000

Turnover = $600K / $125K = 4.8x per year

Days = 365 / 4.8 = 76 days average to sell inventory

## Related Terms

[**Days Inventory Outstanding (DIO)**  
The average number of days a company holds inventory before selling it.  
Learn more](/content/terms/days-inventory-outstanding-dio/index.html)

[**COGS (Cost of Goods Sold)**  
The direct costs of producing and delivering your product or service, subtracted from revenue to calculate gross profit.  
Learn more](/content/terms/cogs-cost-of-goods-sold/index.html)

[**Gross Profit Margin**  
The percentage of revenue remaining after subtracting the direct costs of producing goods or services sold.  
Learn more](/content/terms/gross-profit-margin/index.html)

## Learn More About Inventory Turnover Ratio

[Ecommerce **Reorder Point Formula for Ecommerce: When to Restock Without Guessing**  
Learn the reorder point formula for ecommerce, why generic inventory math fails online sellers, and how to factor cash into every restocking decision.  
Read article](/content/blog/reorder-point-formula-ecommerce/index.html)

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