# What is Inventory Turnover?

What is Inventory Turnover? How many times inventory is fully sold and replaced in a year. Turnover = COGS / average inventory value.

## How it works in practice

Inventory turnover is the 'pulse' of inventory management. Turnover of 2x means holding 6 months of average inventory. Turnover of 12x means holding 1 month. The higher it is, the less capital is tied up, the better cash flow, and the lower the risk of depreciation.

## Related metrics

- Cash Flow — high turnover = good cash flow
- Stockout Risk — turnover that's too high = high stockout risk
- COGS — part of the turnover calculation
- Safety Stock — safety stock slightly lowers turnover

## Common misconception

'Higher turnover is always better.' Turnover that's too high (above 24x) means holding less than 2 weeks of inventory — high stockout risk. The balance: high turnover that doesn't cause stockouts.

## How to fix it

Low turnover? (1) Identify SKUs with turnover under 4x — 'stale' inventory, (2) Run a clearance sale, (3) Lower reorder quantity on these products, (4) Consider dropping them from the catalog. Turnover too high plus stockouts? Increase safety stock.

## Real-world example

Home goods store: average turnover 6x. SKU analysis: 40 SKUs with turnover under 2x = $23,600 in tied-up inventory. Clearance sale + halted reordering: freed up $18,000 in cash flow. Turnover rose to 8.5x.

## Where to start

Calculate inventory turnover by SKU category quarterly. SKUs with turnover under 3x are an active problem. Benchmarks by category: apparel 4-6x, electronics 8-12x, food 20-30x.

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Category: Logistics · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/inventory-turnover