Inventory Turnover

What Is Inventory Turnover?

Inventory turnover, also called inventory turns, is a ratio that tells you how fast your inventory sells. A high turnover means products move quickly. A low turnover means stock is sitting on shelves for a long time.

It is one of the most useful health checks for an ecommerce brand because inventory is cash that has not been converted into sales yet.

How It Works

The common formula is cost of goods sold for a period divided by average inventory value for that period. Average inventory is usually the beginning inventory plus ending inventory, divided by two.

For example, a brand has $300,000 in cost of goods sold for the year. It started the year with $60,000 in inventory and ended with $40,000, so average inventory is $50,000. Turnover is $300,000 divided by $50,000, or 6 turns per year. That means the brand sells through its inventory about every two months.

Turnover can also be calculated per SKU to find which products are moving well and which are slowing down.

• Turnover = cost of goods sold / average inventory.
• Track by SKU, not just the whole catalog.
• Compare against your own history and category.

Why It Matters for Ecommerce Brands

Higher turnover usually means less cash tied up in stock and lower storage fees. Low turnover can signal overbuying, weak demand or products that are becoming dead stock.

There is no single right number. Turnover varies by category, price point and business model. Very high turnover can even be a warning sign if it comes with frequent stockouts. The goal is a healthy balance between availability and efficiency, reviewed regularly at the SKU level.