Inventory Turnover Ratio Calculator

What is Inventory Turnover Ratio?

The Inventory Turnover Ratio is a financial metric showing how many times a company has sold and replaced its inventory over a given period (usually a year). It is a key indicator of e-commerce health, supply chain efficiency, and cash flow.

The Formulas

Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory Value

Days Sales of Inventory (DSI) = (Average Inventory Value / COGS) * 365

What is a "Good" Turnover Ratio?

A good inventory turnover ratio depends heavily on your industry. However, generally speaking:

• Ratio of 1-3: Dangerously low. You are over-ordering stock, tying up too much cash, and risking dead stock or obsolescence.
• Ratio of 4-6: The healthy sweet spot for most e-commerce businesses. You are balancing fulfilling demand without sitting on too much cash.
• Ratio of 10+: Exceptionally high. While great for cash flow, you might be under-stocking and losing sales due to frequent stockouts.

The Silent Killer: Holding Costs

Many e-commerce founders buy large bulk orders to get cheaper per-unit pricing. However, they forget to calculate Holding Costs (warehouse storage, insurance, depreciation). If your DSI is 180 days, you are paying 6 months of storage fees just for that item to sit on a shelf. A slightly higher per-unit cost on a smaller order is often much more profitable than a massive bulk order that takes 12 months to sell.