Let’s also say that it takes you twice as long to sell through the 300 pillows as it does to sell through 300 electronics. In this case, you’re also doubling storage again, for a whopping 24x in warehousing costs and much less potential profit. Whether your inventory turnover is too high or too low, here are some measures you can take to try and combat or regulate the issue. High-quality photos and detailed descriptions can make a big difference in how quickly your products sell. You can use the resources below to discover more ways to boost conversion rates for your online store. For example, you might currently have a low ratio, but that could be that you’re just well stocked for an upcoming peak sales season.

Every business is unique, so you need to figure out what works for you. Once you’ve got that down, you can start making smarter decisions about when to buy inventory and how much to buy. Well, if you’re running an ecommerce business, this is one metric you can’t afford to ignore. It’s the lifeblood of your business, the pulse that keeps your financials ticking. 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. In this blog, we’ll go over why inventory turnover matters, and understanding, calculating, and optimizing it.

Changes in customer preferences, seasonal trends, and advancements in technology can all impact turnover ratios. One of the biggest missteps eCommerce sellers make is miscalculating their Cost of Goods Sold (COGS). This error, often caused by leaving out key costs like shipping fees, storage charges, or platform fees, can disrupt the entire inventory turnover analysis. To get it right, rely on accurate data from your inventory management software, income statements, and balance sheets.

Keep a close eye on sales patterns, fine-tune your order quantities, and improve your inventory management processes. Using tools or financial solutions designed for eCommerce businesses can also help you manage cash flow effectively and ensure you’re investing in inventory turnover ratios for ecommerce the right products at the right time. An extremely high inventory turnover ratio can create challenges like frequent stockouts, missed sales opportunities, and unhappy customers.

• However, there are instances when a high inventory turnover ratio may not be good for your business.
• Continuous tracking is key to refining your inventory strategy over time.
• This is good because it means less money is tied up in stock, and more cash can be generated from sales.
• It could be due to offering heavy discounts in an attempt to clear inventory quickly because of poor inventory management, such as overstocking.

What does inventory turnover rate mean in online business?

These discounts may temporarily harm your profits, depending on their severity, make space for new inventory goods that sells faster, you may be able to recoup those losses. High inventory turnover can indicate that you are selling your product in a timely manner, which typically means that sales are good in a given period. Ecommerce retailers should strive for a high inventory turnover rate, which means they sell the inventory they have on hand quickly and repurchase fresh inventory often. A high inventory turnover ratio usually indicates that products are selling in a timely manner, and that sales are good in a given period. However, an inventory ratio that is too high could mean that you need to replenish inventory constantly, which could lead to stockouts. With an inventory ratio of 4, the company knows that its inventory was sold and replaced 4 times in the past quarter.

Sales and Marketing Strategies

This will give you an accurate overview of your company’s inventory performance. When you know how quickly your inventory is selling, you can plan your cash flow more effectively. If your products are moving fast, you can reinvest that money into new stock or marketing efforts. If some items are moving slowly, you’ll know not to invest more cash in inventory. The industry average inventory turnover ratio reached 10.19 in Q for eCommerce stores. This represents a significant efficiency improvement over previous years.

By having the funds to meet customer demand, especially during peak seasons, you can improve inventory turnover and drive consistent business growth. A high inventory turnover ratio indicates efficient inventory management, with products selling quickly and minimizing the chance of having dead stock. On the other hand, a low inventory turnover ratio suggests slow-selling items that might lead to an accumulation of dead stock.

It can lead to increased storage costs due to excess inventory occupying valuable warehouse space for extended periods. Additionally, it may indicate decreased profitability as stock lingers unsold, impacting cash flow. By monitoring and improving inventory turnover, ecommerce businesses can address these challenges and strive for efficient inventory management. With a high inventory turnover ratio, ecommerce businesses can streamline their supply chain and enhance stock control strategies.

• Additionally, calculating the ratio for different product categories can shed light on which items are selling quickly and which may require more attention or promotional effort.
• For example, bundle underperforming products with bestsellers or create flash sales specifically designed to move aging stock.
• This helps you pinpoint which products are thriving and which might need adjustments, such as pricing changes or promotional efforts.
• With a high inventory turnover ratio, ecommerce businesses can streamline their supply chain and enhance stock control strategies.

Let’s say you own an ecommerce business in the personal electronics niche. You want to compare your own inventory turnover ratio to that of a competitive publicly-traded company, such as Best Buy. Another use of inventory turnover ratios is to measure your performance against competitors or industry benchmarks.