Inventory turnover calculator

The inventory turnover formula

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory, where Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2. Divide the cost of what you sold in the period by the average value of stock you held to sell it. Days to sell (DIO) = 365 ÷ turnover ratio.

Use COGS, not revenue. Inventory is carried on your books at cost, so dividing by revenue mixes your profit margin into the ratio and overstates it. Averaging beginning and ending inventory smooths out seasonal peaks so a single snapshot does not distort the picture.

Days to sell (also called days inventory outstanding) is often more intuitive than the ratio: a turnover of 4 means the average item sits about 91 days before it sells — roughly a quarter of cash tied up on the shelf at any time.

A worked example

Say annual COGS is $120,000, beginning inventory is $35,000, and ending inventory is $25,000. Average inventory is ($35,000 + $25,000) ÷ 2 = $30,000. Inventory turnover is $120,000 ÷ $30,000 = 4.0×.

Days to sell is 365 ÷ 4.0 = 91 days. This business sells through its average inventory four times a year — the typical item sits about three months. Whether that is good depends on the industry: fine for furniture, slow for consumables.

Good inventory turnover ratios by industry

It depends on the industry — treat these as orientation and compare against your own history first. Grocery and perishables often run 12–25× (15–30 days to sell) because stock must move fast. General retail and ecommerce typically land at 4–8× (45–90 days). Electronics run about 5–8× (45–75 days).

Manufacturing and parts businesses are healthy at 3–6× (60–120 days), and furniture, jewelry, or heavy equipment can be fine at 2–4× (90–180 days) because items are high-value and slow-moving. A higher ratio is not automatically better: pushed too far it causes stockouts, rush shipping fees, and lost sales during supplier delays.

How to improve inventory turnover

Clear dead stock first. Items that have not moved in 6–12 months drag the whole ratio down — discount, bundle, or write them off, because shelf space and cash beat wishful thinking.

Order less, more often, for slow movers. Smaller, more frequent orders cut average inventory without hurting availability, especially for items with reliable suppliers. Set reorder points instead of gut-feel buying: over-buying "just in case" is the most common turnover killer.

Track turnover per item, not just overall. The blended ratio hides problems — one dead SKU category can offset ten healthy ones. Per-item movement history shows exactly where cash is stuck.