Inventory Turnover
A ratio measuring how many times inventory is sold and replaced over a given period.
A ratio measuring how many times inventory is sold and replaced over a given period.
Why It Matters
Inventory turnover measures capital efficiency. High turnover means cash isn't sitting in warehouses—it's cycling through sales. Low turnover indicates overstocking, poor demand forecasting, or weak sales. It directly impacts cash flow and profitability.
Benchmarks
A good Inventory Turnover is 4-8x annually. Top performers achieve 10-12x.
Good Performance
4-8x annually
Top Performers
10-12x
Practical Example
Scenario
A home goods brand tracks inventory turnover across categories.
Calculation
Annual COGS: $1.2M. Average inventory: $200K. Turnover = $1.2M / $200K = 6x annually. Kitchen products: 9x. Decor: 4x. Seasonal: 2x.Result
The category analysis reveals seasonal items are tying up capital. Reducing seasonal inventory and reallocating to kitchen products improves overall turnover to 7.5x.
Pro Tips
- 1Calculate turnover by category and SKU, not just overall
- 2Compare turnover to industry benchmarks for your category
- 3Improving turnover from 4x to 6x frees up 33% of inventory capital
- 4Balance turnover with stockout risk—don't over-optimize into stockouts
Common Mistakes to Avoid
Frequently asked questions
Put it to work
Related Terms
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7.7x blended return at scale — seven figures attributed, across five straight quarters · Modern Prairie · Apr 2025–Jun 2026 Read the Modern Prairie case study
