Inventory Turnover Formula:
Complete Guide
Master the inventory turnover formula with step-by-step examples, variations, and how to improve your ratio.
The Inventory Turnover Formula
Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
Cost of goods sold during the period (same period as inventory).
(Beginning + Ending inventory) ÷ 2. Use same valuation method as COGS.
Number of times you sell and replace inventory. Higher = faster sell-through.
Quick Example
COGS $120,000, average inventory $30,000.
Turnover = $120,000 ÷ $30,000 = 4 (4 times per period). Days = 365 ÷ 4 ≈ 91 days.
Know Your Inventory and COGS
StoreRadar helps you track COGS and inventory so you can calculate turnover and days of supply by product or category.
Inventory Turnover Formula Variations
Use annual COGS and average inventory for annual turnover.
Use for the denominator in turnover. For monthly turnover, use monthly COGS and average inventory.
Also called 'days sales of inventory' or 'inventory days.'
Higher than COGS-based; use consistently if you prefer revenue.
Worked Examples
Annual Inventory Turnover
Last year COGS was $360,000. Beginning inventory $55,000, ending inventory $65,000.
- 1 Average Inventory: ($55,000 + $65,000) ÷ 2 = $60,000
- 2 Inventory Turnover: $360,000 ÷ $60,000 = 6
- 3 Days of Inventory: 365 ÷ 6 ≈ 61 days
You turn inventory 6 times per year; about 61 days of supply.
Selling through inventory 6 times is healthy for many ecommerce businesses. Use 61 days to plan reorder points and cash flow.
Comparing Two Products
Product A: COGS $80,000, average inventory $20,000. Product B: COGS $30,000, average inventory $25,000.
- 1 Product A Turnover: $80,000 ÷ $20,000 = 4
- 2 Product B Turnover: $30,000 ÷ $25,000 = 1.2
- 3 Product A Days: 365 ÷ 4 = 91 days
- 4 Product B Days: 365 ÷ 1.2 ≈ 304 days
Product A turns 4x (91 days); Product B turns 1.2x (304 days).
Product B is slow-moving and ties up more capital. Consider reducing stock, promotions, or discontinuing if it doesn't improve.
Monthly Turnover
This month COGS was $28,000. Beginning inventory $42,000, ending inventory $38,000.
- 1 Average Inventory: ($42,000 + $38,000) ÷ 2 = $40,000
- 2 Monthly Turnover: $28,000 ÷ $40,000 = 0.7
- 3 Annualized: 0.7 × 12 = 8.4 turns per year
0.7 turns this month; annualized about 8.4 turns.
Monthly turnover is useful for seasonal or fast-changing businesses. Annualize for comparison to annual benchmarks.
Common Inventory Turnover Mistakes
Using Revenue Instead of COGS
Revenue ÷ Average Inventory gives a different (higher) ratio. Standard turnover uses COGS so the numerator and denominator are both at cost.
Use COGS in the numerator. If you only have revenue, estimate COGS as Revenue × (1 − Gross Margin).
Using Ending Inventory Only
Using only ending (or beginning) inventory can distort turnover if inventory fluctuates a lot.
Use average inventory: (Beginning + Ending) ÷ 2 for the period that matches your COGS.
Mixing Time Periods
Using annual COGS with a one-month average inventory (or vice versa) makes the ratio meaningless.
Match periods: annual COGS with annual average inventory, or monthly with monthly.
Ignoring Seasonality
Comparing Q4 turnover to Q2 without accounting for holiday peaks can be misleading.
Compare year-over-year for the same quarter, or use trailing 12-month COGS and average inventory.
Related Formulas
| Formula | Calculation | Relationship |
|---|---|---|
| COGS | Beginning Inventory + Purchases − Ending Inventory | COGS is the numerator in inventory turnover. |
| Days of Supply | 365 ÷ Inventory Turnover | Inverse of turnover; shows how long stock lasts. |
| Gross Margin | ((Revenue − COGS) ÷ Revenue) × 100 | Margin affects how much revenue you get per unit of inventory. |
| Stock-to-Sales Ratio | Inventory ÷ Sales (or COGS) | Another way to express inventory level relative to sales. |
Frequently Asked Questions
Common questions about inventory turnover
The inventory turnover formula is: Inventory Turnover = COGS ÷ Average Inventory. Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2. The result is how many times you sell and replace your inventory in a period. A turnover of 4 means you go through your average inventory 4 times per period (e.g. per year).
It varies by industry. Retail and ecommerce often aim for 4–6 turns per year; fast-moving consumer goods can be 8–12+. A higher ratio usually means you're selling quickly and not overstocking, but very high turnover can mean stockouts. Compare to your own history and similar businesses.
Use COGS (Cost of Goods Sold) for the numerator. It reflects the cost of inventory sold. Some sources use 'cost of sales'—for most ecommerce, that's the same as COGS. Using revenue in the numerator gives a different (higher) ratio; COGS is the standard for inventory turnover.
Days of Inventory (or Days Sales of Inventory) = 365 ÷ Inventory Turnover. If turnover is 6, you have 365 ÷ 6 ≈ 61 days of inventory on average. This tells you how many days of sales your current stock level represents.
Inventory turnover is 'how many times you turn inventory per period' (e.g. 5x per year). Inventory days (or days of supply) is 'how many days your current inventory would last' = 365 ÷ Turnover. They're inverses: high turnover = low days of inventory.
Low turnover can mean overstocking, slow-moving SKUs, or poor demand forecasting. It ties up cash and increases holding costs. Improve by reducing safety stock where possible, discontinuing slow movers, running promotions on excess inventory, and improving demand planning.
Track Inventory and COGS
StoreRadar helps you see COGS and inventory so you can calculate turnover and optimize stock levels.
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