![]() ![]() This risks stock-outs that cause lost sales and create gaps in your sales history, negatively impacting your search ranking on marketplaces like Amazon and eBay. ![]() It could indicate that you are ordering too often and letting stocks run too low. On the other hand, a really high inventory turnover ratio might not be good either. It means you are ordering regularly and moving stock through the business quickly, rather than purchasing a huge pile of stock that takes up space and shrinks down slowly. The general idea is that a higher inventory turnover ratio is better. To achieve an inventory turnover ratio of more than one, you will need to have bought more stock during the year, probably on multiple occasions. Of course, you can’t sell the same stock more than once. You might also hear people say that they “turned over” their inventory twice or that they had two “inventory turns”. If you sold 200 units in the year, and had 100 units in stock on average, your inventory turnover ratio was 2. ![]() The ratio is calculated from the cost of inventory, but let’s look at an example based on units to make it simpler. Your inventory turnover ratio shows how many times inventory was repeatedly sold and replaced over a period of time, usually a year. Without them, you are working in the dark and risk making decisions that move your business in the wrong direction. This helps avoid stock-outs and excess inventory, shows the impact of higher costs, and helps you prioritize the most profitable products.Īs you make changes to how you manage your purchasing, product selection, pricing and marketing, these metrics will change, showing you clearly if things are improving or declining. ![]() Once you know them, you have a baseline that you can monitor. These metrics provide an overall picture of your inventory health. Inventory turnover ratio and inventory-to-sales ratio are usually annual metrics, and inventory sell-through rate is typically calculated on a monthly basis. This tells you how quickly you are selling your stock.
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