Inventory turnover, explained.

The formula

Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory Value (at cost)

Over a year. If your COGS for the year was $600,000 and your average inventory at cost was $150,000, your turn rate is 4.0: you turned your inventory over four times.

Days of Inventory (the inverse)

Days of Inventory = 365 ÷ Turnover

A turn rate of 4.0 is roughly 91 days of inventory on hand. A turn rate of 6.0 is roughly 61 days. Days-of-inventory is often easier to reason about than raw turns because you can compare it directly to your vendor lead times and your seasonal cycle.

Why turnover drives cash flow

Every dollar sitting in inventory is a dollar that can’t be used elsewhere. Faster turns mean more cycles of revenue per dollar invested in stock, lower carrying cost, less markdown exposure, less risk of obsolescence, and more freedom to chase what’s working. Slower turns mean more cash locked up, more dead-stock risk, more markdown pressure, and less ability to respond to the next season.

Two retailers with the same revenue can have very different cash positions based on turns alone. Doubling turn rate effectively halves the inventory capital you need to run the business.

What a healthy turn rate looks like

Turn rates vary enormously by category and business model — fast-fashion and perishable goods turn many times a year, while high-ticket and luxury categories turn slowly by design, and neither is “right” in the abstract. Rather than chase a borrowed benchmark, judge turns two ways that are always valid: against your own trend over time, and against your other categories. Pair the number with days of inventory and your vendor lead times to see whether a given turn rate is comfortable or risky for your cash cycle.

GMROI: turnover married to margin

Turns alone ignore margin. A fast-turning low-margin SKU and a slow-turning high-margin SKU can contribute equal profit. Gross Margin Return on Investment (GMROI) combines the two:

GMROI = Gross Margin $ ÷ Average Inventory Cost

A GMROI of 2.50 means every dollar invested in inventory returned $2.50 in gross margin over the period. Retailers often track GMROI alongside turns to avoid optimizing for speed at the expense of profitability.

Improving turns

• Smaller, more frequent buys. Shift from one large seasonal commitment to tighter replenishment cycles where the vendor supports it.
• Better reorder discipline. Reorder rules and demand forecasts prevent both stock-outs and over-commitment.
• Faster markdowns on dead stock. A dollar tied up in last season is a dollar not funding next season. Vendee Pro’s dead-stock report surfaces the list automatically.
• Vendor-term negotiations. Shorter lead times and smaller minimums support faster turns. Use vendor scorecards to see who’s flexible.
• OTB discipline. Tracking OTB prevents the over-buying that destroys turns.

Turns in Vendee Pro

The Inventory Turns, GMROI & CMROI report computes turn rates and return on investment side-by-side, grouped by category, vendor, supplier, or source — so you can see where your inventory dollars are working hardest and where cash is sitting still. It also puts Cash Margin ROI (CMROI) next to GMROI, surfacing the cash drag that paper margin alone can hide. Inventory feature →