Inventory turnover tells you how many times you’ve sold and replaced inventory over a given time period—usually a year. It helps measure how efficiently your business manages stock.
Formula
Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average InventoryExample:
Let’s say your store had a COGS of $120,000 last year. At the start of the year, you had $20,000 in inventory, and at the end, you had $10,000.
Average Inventory = ($20,000 + $10,000) ÷ 2 = $15,000
Inventory Turnover = $120,000 ÷ $15,000 = 8This means you turned over your inventory 8 times last year.
Why it matters
A higher turnover usually means strong sales and efficient stock management. A lower turnover might suggest overstocking or poor product selection. But context is key—some premium or seasonal items may naturally move slower, and that’s okay if they serve a purpose in your assortment.