Inventory turnover calculator

Inventory turnover counts how many times you sell and replace your stock in a period. A turnover of 4 in a year means that, on average, you sold the full value of what you hold four times over. A turnover of 12 means once a month.

Why care? Stock is cash sitting on a shelf. The faster it turns, the less money you need tied up to make the same sales, and the less likely it is to age, get damaged or go out of fashion. A low number is often the first sign of slow or dead stock.

• Average stock = (opening stock + closing stock) ÷ 2
• Turnover = cost of goods sold ÷ average stock
• Days on hand = days in the period ÷ turnover

• Cost of goods sold (COGS): what the items you sold cost you, for the period. Opening stock, plus what you bought, minus closing stock, gives you the figure. Use cost, not selling price.
• Opening and closing stock value: the value of everything on your shelves and in your storeroom at the start and end, at cost. A stock count gives you both.
• Days in the period: 30 for a month, 91 for a quarter and 365 for a year. Pick Other if your counts were a different number of days apart.

Cost goes on both sides so the comparison is fair. Dividing sales by stock at cost would overstate turnover by your markup.

A shop counted its stock on 1 January at $50,000 at cost, and on 31 December at $70,000. During the year it bought stock and sold goods that cost $240,000.

1. Average stock

   ($50,000 + $70,000) ÷ 2 = $60,000.

2. Turnover

   $240,000 ÷ $60,000 = 4.0 times a year.

3. Days on hand

   365 ÷ 4 = 91.3 days. At this pace the shelves hold about three months of stock.

The shop might be happy with that, or it might not. Turnover has no single right answer. A shop selling bread and milk should turn much faster than one selling hardware or furniture, so compare against your own past figures and against shops like yours, not against a number from a textbook.

Days on hand turns the ratio into something you can feel. If you pay a supplier on delivery and you hold 91 days of stock, your money has been sitting for about three months before a customer returns it. If your supplier lead time is 7 days and you hold 91, you are carrying far more than you need for most lines.

Compare it with the way your stock actually sells. A shop's total can look healthy while a few lines hold a year of stock and the best sellers run out. Total turnover is an average, and averages hide extremes. For the line-by-line view, see slow-moving and dead stock and ABC analysis.

• Reorder with a number. Set each product's reorder point so you do not top up by feel and overbuy.
• Clear what is not moving. Mark down or bundle slow lines and do not reorder them. Weigh a markdown against its effect on profit with the discount calculator.
• Buy smaller, more often, if your supplier allows it and delivery costs are low.
• Do not starve the best sellers. Higher turnover is good until it means empty shelves. Lost sales cost more than the cash tied up in a safe cushion.

The full guide is inventory turnover for a small shop.

• Only two counts. If stock swung up and down in the middle of the period, the average of opening and closing misses it. Use a month at a time for a better picture.
• Season. A period that ends right after a holiday rush will look better than one that ends before it.
• Count accuracy. Wrong closing values give wrong turnover. A careful count matters more than a precise formula.

Shopkeepa keeps stock as a ledger of movements, so each count and each sale leaves a record you can look back at. See inventory tracking.