Cash Flow
What Is Inventory Turnover?
Inventory turnover tells you how many times you sell through your average stock in a year. The formula is COGS divided by average inventory. Apparel DTC runs 2 to 3.5x, beauty runs 2.5 to 4x, subscription consumables run 6 to 12x. The common mistake is optimizing turnover without watching fill rate. The target is the highest rate you can sustain above 95% fill.
Inventory Turnover is the number of times you sell through your average inventory in a year. It's the working-capital efficiency proxy that links directly to how much cash is trapped in product.
How inventory turnover is calculated
Inventory Turnover = COGS (Cost of Goods Sold) ÷ Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2.
Inverse relationship to DIO: Turnover = 365 ÷ DIO.
Example
A DTC brand: $19.2M annual COGS, $4.8M average inventory. Turnover = $19.2M ÷ $4.8M = 4.0x per year. Implies DIO of 91.3 days.
What's a good inventory turnover?
- Beauty / personal care DTC: 2.54x
- Apparel DTC: 23.5x
- Food & bev shelf-stable: 3.66x
- Food & bev perishable: 818x
- Outdoor / hardgoods: 1.83x
- Subscription consumables: 612x
See average inventory turnover by vertical for the full benchmark.
The most common mistake
Optimizing turnover without considering fill rate. Turnover and stockout rate trade off. Push turnover too high and you sacrifice Buy Box on Amazon, organic rank, and DTC fill rate. The right turnover is the highest sustainable rate at 95%+ fill.
Frequently Asked Questions
what's a good inventory turnover?
Vertical-dependent. See ranges above.
why is it the inverse of DIO?
Math: Turnover = 365 ÷ DIO. Same information, different units.
should I optimize for higher turnover at all costs?
No, there's a tradeoff with stockouts. Optimize for highest turnover sustainable above 95% fill rate.
Related Terms
- What is DIO?
- What is cash conversion cycle?
- What is working capital?
- Average inventory turnover by vertical
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