Inventory turnoverInventory Turnover Ratio

Inventory turnover — also called the stock turnover ratio — measures how many times you sold through your average inventory during a period (usually a year). It's the most direct answer to "is my inventory healthy?"

A turnover of 4 means you sold through your stock four times in the year. A turnover of 12 means you sold through it monthly. A turnover of 1.5 means you're sitting on roughly 8 months of stock at a time.

The number sits at the intersection of operations and finance. Operators read it as "how fast is my warehouse moving?" CFOs read it as "how productive is the cash we have tied up in stock?"

How to calculate inventory turnover

The standard formula:

Inventory Turnover = COGS / Average Inventory

Where:

• COGS = Cost of Goods Sold for the period
• Average Inventory = (Opening stock value + Closing stock value) / 2 for the same period

Worked example:

A brand has £2,000,000 in COGS for the year. Opening stock was £400,000. Closing stock was £600,000. Average inventory = £500,000.

Inventory Turnover = £2,000,000 / £500,000 = 4

Translation: this brand sold through its inventory four times in the year. Equivalently, every pound of stock spent about three months in the warehouse before being sold.

Inventory turnover vs Days Inventory Outstanding

Same calculation, different framing:

• Inventory turnover = COGS / Average Inventory (a ratio)
• Days Inventory Outstanding = 365 / Inventory Turnover (a number of days)

A turnover of 4 = a DIO of 91 days. Both numbers say the same thing. Use turnover for finance conversations ("we turned 4× this year"); use DIO for ops conversations ("we're holding 91 days of stock").

What "good" turnover looks like

There's no universal benchmark. Turnover varies by category, business model, and supplier lead times.

Rough ranges for scaling consumer brands:

• Fast FMCG / high-velocity DTC: 8–12 turns/year
• Most fashion and CPG: 4–6 turns/year
• Seasonal or made-to-order: 2–4 turns/year
• Below 2: usually a problem — over-stocking, slow movers, or both

The most useful comparison isn't to a benchmark — it's to your own turnover last quarter. Turnover trending down while sales hold flat means inventory is growing faster than demand. That's cash leaking into stock.

Common mistakes that make turnover look wrong

Using revenue instead of COGS. Some operators put revenue in the numerator. Wrong — revenue includes margin; turnover needs cost-on-cost. Using revenue inflates the ratio and gives a false sense of health.

Using closing stock instead of average. Closing stock is a snapshot — distorted by recent POs or end-of-year sell-down. Always average opening and closing.

Including non-stock items. Office supplies, packaging materials, demo units sometimes leak into the inventory line on the balance sheet. They're not inventory in the operational sense; exclude them when calculating turnover.

Calculating turnover annually for a seasonal business. A swimwear brand has near-zero turnover in winter and 12× turnover in summer. The annual average hides both stories. Calculate quarterly, or by season, or by SKU.

Comparing turnover across categories. A 4× turnover is great for fashion, mediocre for FMCG. Benchmarks are category-specific.

What drives turnover down

A drop in turnover usually traces to one of four things:

• Over-buying. MOQ constraints, optimistic forecasts, defensive purchasing ahead of feared shortages.
• Slow-moving SKUs not culled. Dead stock drags the average down even if everything else is healthy. SKU rationalisation is usually the highest-leverage fix.
• Lead-time creep. Longer supplier lead times force more buffer stock, lifting average inventory without lifting sales.
• Demand softness. Sales drop, inventory lags. Turnover halves before anyone notices.

Drill into turnover per SKU and per category and the cause becomes obvious. The site-wide number tells you something is wrong; the SKU-level number tells you what.