Glossary
Inventory turnover
Also called: Stock turn
Inventory turnover is how many times you sell and replace your stock in a year. Higher means your money is working harder.
Turn of 6 means you sold through your average stock holding six times.
Working it out
Cost of goods sold for the year, divided by your average stock value at landed cost.
Sold £180,000 of stock, held £30,000 on average, turn of 6. Roughly two months of stock on the shelf at any time.
Use cost on both sides. Mixing sales value with stock cost gives a number that looks great and means nothing.
What is healthy
- Fashion and seasonal: 4 to 6
- General retail: 6 to 10
- Food and anything perishable: much higher
These are starting points, not targets. A turn that is too high means you are running thin and taking stockouts to do it.
Where it goes wrong
Turnover is only ever looked at for the whole shop. One number for a store selling 800 products hides the twenty lines doing all the work and the two hundred doing none.
Work it out per line, or at least per category. That is where the dead stock shows up, and it is the same list that tells you which reorder points are set too high.
Related terms
Dead stock
Also called: Obsolete stock
Dead stock is inventory that is not selling and is not going to, tying up money and shelf space you need for something else.
Landed cost
Landed cost is what a unit of stock cost by the time it reached your shelf, including freight, duty and handling.
Reorder point
A reorder point is the stock level that tells you to order more, set so the delivery lands before you run out.