What Is Inventory Turnover?
Inventory turnover measures how many times you sell through your stock in a year. High turnover means efficient capital use; low means dead stock.
Key Takeaways
- Inventory turnover = Cost of Goods Sold ÷ Average Inventory Value.
- Higher turnover means inventory is working harder for your business.
- Typical eCommerce inventory turnover is 4–8x per year; higher is generally better.
The formula
Inventory turnover = Cost of Goods Sold for the period divided by average inventory value (opening plus closing inventory divided by two). If COGS is £400,000 and average inventory is £100,000, turnover is 4x — meaning you cycle through your entire inventory four times per year, or roughly every 90 days.
What a good turnover rate looks like
Turnover benchmarks vary significantly by category. Fast-moving consumer goods (food, toiletries) may turn 20–30x per year. Fashion eCommerce typically targets 4–8x. Furniture or heavy equipment may turn 2–4x. The key comparison is against your own historical trend and your category peers — a declining turnover rate is a concern regardless of absolute level.
Low turnover and its consequences
Low inventory turnover means cash is sitting on shelves, not working in the business. Slow-moving stock ties up working capital, incurs storage costs, risks obsolescence, and requires eventual markdowns. A product with a turnover of 1x per year is generating revenue of its cost price once a year — the margin it produces may not justify the capital it ties up.
How to improve it
Focus buying on your fastest-turning products. Reduce MOQs where possible to reduce overordering. Use promotions or markdowns to clear slow-moving stock — cash in hand today is worth more than a margin that may never materialise on dead inventory. Improve demand forecasting to order more accurately.