How to Calculate Inventory Turnover Used By Shopify D2C Brand [Formula + App]

What is Inventory Turnover - A quick explanation

Inventory turnover measures how often a Shopify D2C brand sells and replaces its stock within a given period. It is a critical efficiency metric that helps D2C brands assess their sales and inventory management effectiveness.

Inventory Turnover Formula

   
1. Calculate Average Inventory: Add your beginning and ending inventory for the period, then divide by two.
   
2. Apply the Inventory Turnover Formula: Divide COGS by your average inventory. The formula is:  

Inventory Turnover = COGS / Average Inventory
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Improved cash flow and efficient stock management are the results of understanding inventory turnover. In addition to calculating inventory turnover, learn how to calculate days inventory outstanding for a holistic approach.

Using Prediko to Calculate and Manage Inventory Turnover

Prediko offers a simple and straightforward way of calculating and managing Inventory Turnover.

The Prediko Buying Table gives you live recommendations on what products to reorder and has customisable columns that give you easy access to the information you need to calculate your inventory turnover

Prediko makes your COGS values easily accessible within the buying table and allows you to easily extract average inventory reports to calculate your inventory turnover. By having easy access to this information you are set up to succeed in improving your inventory turnover.

Analysing the Value for Inventory Turnover

1. High Inventory Turnover

This indicates that the brand is selling its inventory quickly and suggests strong sales and/or effective inventory management. High turnover can be advantageous because it suggests there is little obsolete inventory, reducing storage and insurance costs.

2. Low Inventory Turnover

This means that inventory is selling more slowly. This can be a concern as it may indicate poor sales performance, overstocking, or obsolescence. Low turnover can lead to higher storage costs, increased risk of inventory obsolescence, and potential cash flow issues due to capital being tied up in unsold inventory.

Strategies to Apply For Your Brand

   
• Assessing Inventory Operations Efficiency: The inventory turnover ratio helps brands determine how efficiently they are managing their inventory. With Prediko, a typical Shopify brand is able to save 20 hours/week on inventory operations & management. In addition to turnover, understanding Calculating Days on Hand Inventory is crucial for managing stock effectively.
   
• Optimizing Stock Levels: By analyzing and interpreting inventory turnover, brands can make informed decisions about how much stock to keep on hand. This can help prevent overstocking, which ties up capital and increases storage costs, or understocking, which can lead to missed sales opportunities.
   
• Product Performance Analysis: The inventory turnover ratio can be calculated for individual products or product categories to understand the performance of a product. At Prediko, our buying table does that exactly for your brand.

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Understanding and optimizing inventory turnover leads to more efficient stock management and improved cash flow for your Shopify D2C brand.