Inventory turnover calculator and days of cover

The answer

Stock turns a year

– times

Days of cover

– days

Weeks of cover

– weeks

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The formula

Turnover is what you sold divided by what you held, both at cost.

stock turns = cost of goods sold ÷ average stock value
days of cover = 365 ÷ stock turns

Both sides have to be at cost. Putting a retail stock value against a cost of sales figure is the most common mistake here. It makes a slow shop look fast, by exactly the size of your margin.

A worked example

Over a year the stock you sold cost you 480,000. Across twelve month ends your stock was worth 80,000 on average, at cost.

480,000 divided by 80,000 is six. Your stock turns six times a year.

365 divided by six is about 61. So the average unit sits on your shelf for two months before it sells.

What a good number looks like

Six turns is a reasonable place for a general retailer. Under three and you are holding four months of stock, some of which will become dead stock.

The trade matters more than the number. Grocery turns twenty times a year and furniture turns twice, and neither is doing anything wrong. The useful comparison is you against you, last year.

Very high turns are not automatically good. A shop turning stock thirty times is often a shop that is out of stock half the time. Read this figure next to how often you run out, not on its own.

Where this goes next

If the number is low, the fix is usually ordering rather than selling. Work out proper trigger levels with the reorder point calculator so you stop buying a quarter ahead of need.

Check the cost side too. If your Shopify cost per item fields hold the invoice price rather than the true one, your cost of goods sold is understated. The landed cost calculator works out what should be in there.

Questions people ask

What is inventory turnover?

It is how many times a year you sell and replace your whole stock. Six turns means the average unit sits for about two months before somebody buys it.

Why cost and not retail value?

Because cost of goods sold is measured at cost. Mixing a retail stock value with a cost sales figure inflates the answer by whatever your margin is, which makes a slow shop look fast.

Where do I find these numbers in Shopify?

Cost of goods sold is in Reports under Finances, as long as your cost per item fields are filled in. For average stock value, take a month end stock valuation for twelve months and average them.

What is a good turnover figure?

It depends heavily on the trade. Grocery runs at twenty or more. Furniture runs at two. Compare yourself to last year rather than to somebody else's shop.

Is a high number always better?

No. Very high turns often mean you are running out. Read this next to how often you are out of stock, or you will fix one problem by causing another.

Inventory turnover calculator

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