Inventory turnover
Inventory turnover is the number of times a business sells and replaces its average inventory in a period, usually a year. It is calculated as cost of goods sold divided by average inventory at cost. Ecommerce operators use it to measure how hard the cash tied up in stock is working.
| COGS | Cost of goods sold for the period, at cost - ideally landed COGS (cost plus freight-in plus duty) |
| Average inventory | (Beginning inventory + ending inventory) ÷ 2, also at cost |
Some sources divide revenue by inventory. That inflates the ratio by your margin and breaks every comparison - keep both sides at cost.
Worked example
A store closes its year with these figures (example numbers).
The average dollar of stock converts into a sale five times a year - about 73 days from receipt to sale.
What is a good inventory turnover?
It depends, and any quoted target that ignores your inputs is noise. What sets your sustainable turn: the category and purchase cycle (consumables turn far faster than considered purchases), supplier lead times and minimum order quantities (long lead times force deeper stock and lower turns), your margin structure (a high-margin line can justify slower turns because each inventory dollar earns more when it does sell), and your cash position. Higher is not automatically better - pushing turns up by cutting depth simply trades holding cost for stockouts.
Inventory turnover vs related metrics
| Metric | What it measures | How it differs |
|---|---|---|
| Days of cover | How long current stock lasts at the current sales rate | Forward-looking, per SKU, in units. Turnover is a backward-looking average at cost, usually for the whole catalogue. |
| Sell-through rate | Share of a buy sold within a window | A unit percentage that judges one buy. Turnover judges the whole inventory position over a year. |
| GMROI | Gross margin dollars earned per inventory dollar | Adds margin to the speed question: a slow turn on a rich margin can beat a fast turn on a thin one. |
| Cash conversion cycle | Days from paying suppliers to collecting from customers | Turnover drives its inventory leg; payment and collection terms make up the rest. |
Common mistakes
- Dividing revenue by inventory. That mixes retail and cost and inflates the ratio by your margin. Both sides at cost, always.
- Using a point-in-time inventory figure. A season-end count flatters the ratio; a pre-season count damns it. Use the average across the period.
- Reporting one blended number. A items turning 12x can hide dead stock turning 0x. Compute it per SKU or class before acting on it.
- Chasing a higher turn into stockouts. The cheapest inventory is not zero inventory - every stocked-out day is unserved demand and lost margin.
- Ignoring stock you have paid for but not yet received. Cash is tied up from payment, not from receipt. In-transit stock belongs in the working capital picture.
Frequently asked questions
In Blufire, S7 Inventory runs the ABC x XYZ classification with days-of-cover and reorder tracking per SKU, so the blended turnover number decomposes into the specific products holding your cash.
Updated July 2026