Sortly lets you manage inventory from any device, in any location. But Sortly’s inventory management software can help you organize, track, and manage your inventory-and provide you with the right data and reports that can help you easily calculate your business’s turnover ratio. If you stock more than a handful of products, it can be time-consuming to calculate the inventory turnover ratio for each of them. Achieve a Good Inventory Turnover Ratio with Better Inventory Management If you calculate the turnover ratio for each of your products, it will help you determine what your customers want and need while keeping your business out of the red. This good ratio means you will neither run out of products nor have an abundance of unsold items filling up storage space. What Is a Good Inventory Turnover Ratio?Īn inventory turnover ratio between 4 and 6 is usually a good indicator that restock rates and sales are balanced, although every business is different. Learn more about important inventory formulas and ratios that can help you analyze your business’s key performance indicators. You turned the inventory 2.4 times during the 12 months. $125,000 average inventory value for the same 12 months =2.4 $300,000 cost of goods sold for 12 months It includes expenses for materials, labor, distribution, sales force, and all direct or indirect costs related to an item.Īverage inventory value – It is the inventory value of a product within a specific period. You can determine the inventory turnover ratio for a product with this calculation:Ĭost of goods sold for 12 months ÷average inventory value during the same 12 monthsĬost of goods sold – It’s your cost to produce your sold product-not the selling price. Learn more about inventory turnover and what it can tell you about your business. Businesses should aim to achieve an inventory turnover ratio that is consistent with their industry benchmarks and that does not compromise sales or profitability. For example, retailers typically have higher inventory turnover ratios than manufacturers, as they sell their products directly to consumers. In general, a healthy inventory turnover ratio varies depending on the industry. Additionally, a high inventory turnover ratio can be a sign that a business is not pricing its products high enough, which can eat into profits. An inventory turnover ratio that is too high can signal that a business is not carrying enough inventory to meet demand, which can lead to stockouts. However, there can be too much of a good thing. Start a Free Trial Is a high turnover ratio good?Ī high inventory turnover ratio is generally considered a good thing for businesses, as it indicates that they are efficiently selling their products and generating revenue.
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