Question 1

What is a good inventory turnover ratio?

Accepted Answer

Industry benchmarks: Fashion/apparel: 4-6x per year. Electronics: 8-12x. Grocery: 15-25x. Furniture: 3-5x. High-end jewelry: 1-2x. For e-commerce generally, 6-12x inventory turns is healthy. Below 4x often signals slow-moving stock, over-purchasing, or poor demand forecasting. Above 12x may signal stock-outs and missed sales.

Question 2

How do I calculate inventory turnover ratio?

Accepted Answer

Inventory Turnover Ratio = COGS / Average Inventory. Days Inventory Outstanding (DIO) = 365 / Inventory Turnover Ratio. Example: $500K COGS / $100K average inventory = 5x turns. DIO = 365/5 = 73 days — you're holding 73 days of inventory. Aim to reduce DIO to match your lead times plus safety stock buffer.

Question 3

What is the true cost of holding inventory?

Accepted Answer

Total holding costs = 20-30% of inventory value annually. Components: storage/warehouse (8-12%), cost of capital (5-8%), insurance (1-2%), shrinkage/loss (1-3%), obsolescence (3-5%), handling (2-3%). For a $200K inventory position: $40,000-$60,000/year in holding costs. Reducing inventory by $50K saves $10,000-$15,000 annually.

Question 4

How can I improve inventory turnover?

Accepted Answer

Strategies: (1) ABC analysis — focus on fast-moving A-items, liquidate slow C-items; (2) Demand forecasting — use historical sales + seasonality to right-size purchases; (3) Just-in-time ordering — smaller, more frequent orders from reliable suppliers; (4) Markdown slow movers at 30/60/90 days; (5) Bundle slow-moving items with fast movers; (6) Drop-shipping for long-tail SKUs instead of stocking.

Inventory Turnover Calculator — Days Inventory Outstanding & Cash Flow

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