Inventory Turnover Ratio Defined: Explaining the Formula & Tips DCL Logistics

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Inventory Turnover Ratios for Ecommerce: Everything You Need To Know

To achieve a good inventory turnover ratio, pay attention to your customers’ demographics and the market trend to make yearly and quarterly forecasts. However, an extremely Inventory Turnover Ratios for Ecommerce: Everything You Need To Know high inventory turnover is not always positive. In some cases, it is caused by an insufficient inventory, potentially leading to lost sales if the product is sold out.

Inventory Turnover Ratios for Ecommerce: Everything You Need To Know

If you have your cost of goods sold on hand, you should use that number instead of sales. In a given year, you typically sell 1,000 pairs of shoes, though you typically have 250 pairs of shoes in stock at a time. To do this, we take the inventory at the beginning of the period and add it to the inventory at the end of the period. We then divide this number by 2 to get the average inventory for the period. Write off unsold inventory at the end of year or accounting period . If you’re a ShipBob customer, we partner with GiveNkind to match donated items with nonprofits in need. As GiveNkind’s #1 partner, our customers have been able to donate millions of dollars of goods.

Why is inventory turnover important?

This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently. Too high or too low of an inventory turnover ratio isn’t good for business. While low turnover can lead to a stockpile of goods at your warehouse, high turnover can lead to frequent stockouts and angry customers. You want to calculate your inventory turnover ratio for one year to understand how often you exhaust and replenish total inventory during that time. You could do that by increasing advertising, lowering prices, or reducing reorder quantities, among other things.

Any company in the business of moving inventory from one point of the supply chain to another must be aware of their inventory turnover ratio. There are differences in value between B2B vs. B2C, but they both benefit greatly by controlling their turnover ratio. On the other side of the coin, low inventory turnover signals poor purchasing or sales and marketing strategies.

Review your pricing strategies

Magestore POS is a web-based and Magento-native POS which requires at least one Magento website to work. A negative inventory turnover happens when you sell more goods than what you have in stock.

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