Question 1

What is inventory turnover and how is it calculated?

Accepted Answer

Inventory turnover measures how many times you sell and replace inventory per year. Formula: Inventory Turnover = COGS ÷ Average Inventory. Average inventory = (beginning + ending inventory) / 2. A turnover of 5× means you sell through your entire inventory 5 times per year, or roughly every 73 days. Higher turnover generally means more efficient inventory management.

Question 2

What is a good inventory turnover ratio for e-commerce?

Accepted Answer

Good turnover varies by industry: Grocery/Food: 12-20×. Fashion/Apparel: 4-6×. Electronics: 5-8×. Beauty/Cosmetics: 4-7×. General Retail: 4-6×. Jewelry: 1-3×. For most Shopify stores, 4-8× is healthy. Below 2× means too much capital is tied up. Above 12× might mean you're understocked and missing sales. Compare against your specific industry benchmark.

Question 3

What is GMROI and why does it matter?

Accepted Answer

GMROI (Gross Margin Return on Inventory Investment) measures how much gross profit you earn per dollar of inventory investment. Formula: GMROI = Gross Profit ÷ Average Inventory. A GMROI of $3.50 means you earn $3.50 in gross profit for every $1 invested in inventory. Aim for $3+ — below $2 means your inventory investment isn't generating enough return. GMROI combines turnover AND margin into one metric.

Question 4

How do I improve inventory turnover?

Accepted Answer

Six strategies: 1) Cut slow-moving SKUs — the bottom 20% of products often tie up 50% of inventory. 2) Reduce order quantities — smaller, more frequent orders. 3) Improve demand forecasting to avoid over-ordering. 4) Run promotions on aging inventory before it becomes dead stock. 5) Negotiate shorter lead times with suppliers. 6) Implement ABC analysis — manage A-items (top 20%) more aggressively than C-items.

Question 5

What is days of inventory (DSI)?

Accepted Answer

Days Sales of Inventory (DSI) is the average number of days it takes to sell your inventory. Formula: DSI = 365 ÷ Inventory Turnover. A DSI of 73 means it takes 73 days on average to sell through inventory. Lower DSI = faster-selling inventory. DSI is useful for cash flow planning — if DSI is 73 days and payment terms are Net 30, you're holding inventory for 43 days longer than you're paying for it.

Turnover	DSI	Avg Inventory	Inventory Freed	Holding Saved/yr
5.3×Current	68 days	$60,000	—	—
6.3× (+1)	58 days	$50,526	$9,474	$2,368
7.3× (+2)	50 days	$43,636	$16,364	$4,091
8.3× (+3)	44 days	$38,400	$21,600	$5,400
10.3× (+5)	35 days	$30,968	$29,032	$7,258

Inventory Turnover Calculator

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