What is inventory turnover? (the simple version)
Inventory turnover tells you how many times you sold through your stock in a period, and one small division is all you need to find yours.
The one-line meaning
Inventory turnover answers a plain question: how many times did I sell and replace my stock in a given period? A high number means stock moves quickly. A low number means money is sitting on your shelf.
You do not need an accounting course for this. You need two numbers from your own records.
The formula
Turnover = units sold in the period divided by average units held in stock.
Average stock is simply the stock at the start plus the stock at the end, divided by two.
A worked example
Say you sell hand-poured candles. In one month you sold 60 candles. At the start of the month you held 40, and at the end you held 20. Your average stock is (40 + 20) / 2 = 30 candles.
Turnover = 60 / 30 = 2.
That means you sold through your average shelf twice in the month. Put differently, a typical candle waited about half a month to sell (30 days divided by 2 is 15 days).
Now imagine a second product, a brass diya set. You sold 6 units while holding an average of 30. Turnover = 6 / 30 = 0.2. At that pace the shelf takes about five months to clear. Same shelf space, very different story.
Why a seller should care
Stock is money you have already spent. Every unit that sits unsold is cash you cannot use for packaging, ads or the next batch. Looking at turnover per product shows you which items quietly pay your bills and which ones only look nice in photos.
It also helps you plan buying. If a product turns over twice a month, ordering a quarter's worth in one go is a big bet. If it turns over rarely, reordering small is wiser.
How to calculate it without a system
- Pick one period, a month works well.
- Count what you hold at the start and the end. If you do not count regularly, the post on doing a weekly stock count in 30 minutes gives a quick routine.
- Take units sold from your orders list. Your store's order history can be exported to a spreadsheet, which saves retyping.
- Divide, and write the result next to the product name.
Do this per product, not for the whole shop. A single blended number hides the winners and the dead stock.
Reading the result sensibly
There is no magic good number that applies to everyone. A fresh food seller and a furniture maker will have very different rhythms, and your own numbers matter more than anyone else's. What counts is the trend for the same product over time, and the gap between your fast and slow items.
Some practical reactions:
- Rising turnover on a product: consider stocking slightly deeper so you do not run out.
- Falling turnover: check whether the photos, price or description changed, or whether the season simply passed.
- Very low turnover: think about a bundle, a small discount, or stopping reorders. The post on slow stock clearance break-even shows how to price a clear-out without losing money.
Mistakes to avoid
Do not use opening stock alone. If you started with 40 and ended with 5, using 40 overstates how much you held for most of the month.
Do not count made-to-order items you have not yet made as stock. Only finished units on your shelf belong in the count.
Do not chase a bigger number at any cost. Running out of your best product because you wanted a tidy ratio is a mistake too.
For a longer look at the idea with a small-store angle, see inventory turnover for a small store.
The takeaway
Sold units divided by average held units. Do it monthly, per product, and let the pattern guide what you reorder, bundle or retire.