# Inventory Turnover

## Quick Definition

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

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## What is Inventory Turnover?

Inventory turnover measures how many times you sell and replace your inventory over a period. Higher turnover means products are selling quickly; lower turnover means products sit longer before selling.

An inventory turnover of 6x means you sell your entire inventory six times per year, or roughly every two months.

## Why Inventory Turnover Matters

Inventory ties up cash. Products sitting in a warehouse represent money you can't use for growth. High turnover means efficient capital use. Low turnover might indicate overstocking, obsolete products, or weak demand.

Different industries have different benchmarks. Grocery stores might turn 15x+ annually. Furniture stores might turn 4x. Compare against your industry.

## Improving Inventory Turnover

Improve demand forecasting to order the right quantities. Clear slow-moving inventory with promotions. Negotiate shorter lead times with suppliers. Consider dropshipping for long-tail items. Analyze turnover by SKU to identify problems.

### Formula

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory  
Days Inventory Outstanding = 365 ÷ Inventory Turnover  
Higher turnover = faster-moving inventory

### Example

Your ecommerce company analyzes annual inventory performance:

- Cost of Goods Sold: $600,000  
- Beginning inventory: $80,000  
- Ending inventory: $120,000  
- Average inventory: $100,000

Inventory Turnover = $600,000 ÷ $100,000 = 6x

You sell through your entire inventory 6 times per year, or roughly every 2 months.

## 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)

[**Sell-Through Rate**  
The percentage of inventory sold compared to what was received, measuring how quickly products move.  
Learn more](/content/terms/sell-through-rate/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)