Inventory glossary

What is Inventory turnover?

Inventory turnover is how many times a store sells and replaces its average inventory over a set period, usually a year.

Inventory turnover tells you if money tied up in stock is moving or sitting still. A high turnover usually means products sell fast and cash comes back quickly. A low turnover often means you are overstocked on items that are not selling, which ties up cash that could go toward better-selling products or other costs.

Small store owners can use turnover to compare products or categories against each other. If candles turn over 8 times a year and mugs turn over 2 times a year, that tells you where to cut back on ordering and where to order more often. Track it by SKU, not just overall, since one slow line can hide behind several fast ones.

Formula

Inventory turnover = Cost of goods sold / Average inventory value

Example

A candle store had cost of goods sold of 24,000 dollars for the year. Average inventory value over the year was 4,000 dollars. Inventory turnover is 24,000 / 4,000 = 6. The store sold and replaced its average stock 6 times during the year.

Common mistakes

  • Using sales revenue instead of cost of goods sold in the formula, which inflates the number.
  • Using ending inventory instead of average inventory, which can be skewed by a single snapshot.
  • Comparing turnover across very different product types without context, like fresh food versus furniture.

Inventory turnover and SteadyShelf

SteadyShelf uses your sales history to forecast demand per variant, which helps you spot slow-turning SKUs before they pile up into excess stock.

Work it out for your own products with our free tool: Inventory turnover calculator.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Days inventory outstanding · Dead stock · Excess inventory · Sell-through rate · Stock cover

Full inventory glossary

FAQ

Is a higher inventory turnover always better?

Not always. Very high turnover can mean you are running out of stock too often and losing sales. The goal is a turnover rate that matches your margins and keeps products in stock without tying up too much cash.

How often should I calculate inventory turnover?

Many stores check it monthly or quarterly for fast-moving categories and yearly for a full picture. Checking too rarely can hide problems building up in specific SKUs.

Let SteadyShelf do this math for every SKU

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