Inventory is cash you cannot spend, sitting on a shelf. This calculator shows how many times a year your stock turns over, how many days of cover you are holding, what that costs you, and the reorder point that keeps you from running out while a delivery is in transit.
Inventory Turnover Calculator
How fast stock moves, and when to reorder.
Inventory turns per year
—
What faster turns would free up
| Turns per year | Days on hand | Inventory needed | Cash freed |
|---|
Estimates only. Results update as you type. Nothing you enter leaves your browser.
What inventory turnover tells you
Turnover is how many times a year you sell through your average stock. Divide annual cost of goods sold by average inventory value, both at cost. Six turns means you sell through your shelves roughly every two months.
Days on hand = 365 ÷ Turns
Reorder point = (Daily sales × Lead time) + Safety stock
Use cost on both sides. Mixing retail value into the top of the fraction is the classic error and it inflates the result by your whole markup.
What a healthy number looks like
It depends entirely on what you sell. Grocery and fresh food run very high, often twenty turns or more. General retail commonly sits between four and eight. Furniture, jewelry, and specialist equipment run low by nature, sometimes two or three, because the goods are expensive and sell slowly. Compare yourself with your own trade and with your own last six months, not with a universal benchmark.
Both directions have a cost. Too slow ties up cash, fills space, and ends in markdowns. Too fast means stockouts, rush shipping, and customers who buy elsewhere.
The real cost of holding stock
Carrying cost is usually estimated at 20% to 30% of inventory value a year. It covers storage and rent, insurance, shrinkage and damage, obsolescence, and the cost of the cash itself, which could have paid down debt or funded marketing. On $45,000 of average stock at 25%, that is about $11,250 a year, which is generally more than owners expect.
Reorder points and safety stock
The reorder point is the level at which you place the next order so stock arrives before you run out. It is daily sales times lead time, plus a safety buffer for the week when the truck is late or sales spike. Setting it once per key item and writing it down beats reordering on instinct, which is how businesses end up with too much of the slow lines and too little of the fast ones.
Where to look first
- Rank every line by turns. Most businesses find a handful of items generating most of the sales and a long tail doing almost nothing.
- Clear the tail deliberately. Discounting dead stock feels like a loss, but the cash and the space are usually worth more than the margin you are protecting.
- Order smaller and more often. If your supplier allows it, this cuts average inventory without changing what you sell.
- Negotiate lead times, not just prices. A shorter lead time lowers your reorder point and your safety stock at the same time.
Frequently asked questions
What is a good inventory turnover ratio?
It varies widely by industry. Grocery and perishables often exceed twenty turns a year, general retail runs four to eight, and high-value goods like furniture or jewelry may turn two or three times. Compare against your own trade and your own trend rather than a single benchmark.
How do I calculate inventory turnover?
Divide annual cost of goods sold by average inventory value, using cost for both. Average inventory is usually the opening balance plus the closing balance, divided by two.
What is a reorder point?
The stock level that triggers your next order. Multiply your average daily sales by your supplier's lead time in days, then add safety stock. Ordering at that level means new stock arrives about when the old runs out.
How much safety stock should I hold?
Enough to cover the gap between a normal week and a bad one. Seven to fourteen days of cover is common for items with reliable suppliers. Increase it for unreliable lead times or seasonal spikes, and decrease it for items you can restock quickly.
Why is my inventory turnover getting worse?
Usually one of three things: you bought ahead of demand, sales slowed and stock levels did not, or dead lines are accumulating and dragging the average down. Ranking items by individual turns will normally show which it is within a few minutes.
More free small business calculators
See all thirteen on the small business calculators page.
These calculators give planning estimates, not tax, legal, or financial advice. Check important decisions with your accountant or lender.
Comments
Post a Comment