Inventory turnover

Formula

COGS / avg inventory (x/yr); DIO = 365 / turns

Unit

turns/yr

Models

E-commerce, Hardware

What it is

Inventory turnover measures how many times a company sells through its average inventory in a year. It is calculated as COGS divided by average inventory. The related metric Days Inventory Outstanding (DIO) inverts this: 365 divided by turns.

How to calculate it

Divide the cost of goods sold for the period by average inventory (beginning inventory plus ending inventory, divided by two). For DIO, divide 365 by the resulting turns figure. A higher turns number (lower DIO) generally indicates faster-moving, more capital-efficient inventory.

Why it matters

Inventory turnover directly affects working-capital requirements and cash conversion cycles for ecommerce and hardware businesses. Excess inventory ties up capital, increases warehousing costs, and raises markdown risk; insufficient inventory leads to stockouts and lost revenue. Optimizing turns is central to gross-margin management in physical-product businesses.

Benchmarks & pitfalls

Per Shopify and Onramp Funds (2025), ecommerce businesses should target 4–6 turns per year as a healthy range, with leaders achieving 8+ turns. Consumer-electronics retail runs 6–10 turns. DIO equivalents: 4–6 turns corresponds to roughly 60–90 days of inventory. Note that COGS-based and revenue-based turnover calculations are not interchangeable — always use COGS for comparability. Category mix matters heavily: fast-moving consumables and seasonal or SKU-heavy assortments have very different natural turn rates.