FLUF / THE SELLER REFERENCE
Inventory turnover: formula, example and sell-through comparison
How many times the average inventory value is sold through during a period, commonly calculated as cost of goods sold divided by average inventory at cost.
The inventory turnover formula
Inventory turnover = cost of goods sold ÷ average inventory at cost. Use the same reporting period for both. A simple average is opening inventory plus closing inventory, divided by two. If stock changes sharply through the period, more frequent observations give a more representative average.
Worked example
A business starts the year with £5,000 of inventory at cost and ends with £7,000. Its simple average inventory is £6,000. Annual cost of goods sold of £24,000 divided by £6,000 gives four inventory turns for the year. Do not divide sales revenue by inventory at cost and label it the same calculation.
Turnover versus sell-through
Turnover compares the cost of goods sold with average stock value. Sell-through measures the proportion of a defined stock pool sold. A business with a few expensive items can show a different pattern by value than by unit count. Neither metric replaces the other, and both require a stated time window.
Is faster turnover always better?
Fast turnover can mean stock is selling efficiently. It can also accompany stockouts if the business holds too little inventory. Slow turnover may indicate poor buying decisions, but long selling windows can be normal for specialist or seasonal goods. Compare the result with availability, margin and the nature of the products.
Common calculation mistakes
Use cost consistently for the numerator and inventory valuation. Avoid treating every purchase as a cost of goods sold when some items remain unsold. Separate damaged or missing items from ordinary sales movements. A zero average inventory value makes the ratio unusable. Before comparing months or channels, check that the underlying valuation method has not changed.
Put it into practice
Use the related reporting guide or calculator. For selling across marketplaces, see FLUF Connect crosslisting and current plans and pricing.
Related terms
Reference
Primary reference: Shopify. The examples on this page are illustrative, not customer results or universal benchmarks.
