1. What is the inventory turnover ratio?
The inventory turnover ratio means the frequency of conversion of inventory into sales in a given period. In other words, it refers to the ratio of inventory volume to shipment volume of goods over a period of time. In particular, inventory volume here refers to the average monthly inventory volume. For example, the ratio of 500% indicates that the stock has rotated 5 times in a given period.
2. What does the inventory turnover ratio tell you about the business?
Generally speaking, the ratio can tell whether:
- You keep too much or too little inventory at a time
- You sell the products fast enough
- You produce/process orders fast enough
- Your manufacturing costs are too high
A high inventory turnover ratio means the business is selling and shipping products fast enough to have a minimum amount of dead stock. In this case, you can lower carrying costs (e.g., warehouse fee, insurance premium) and increase sales and revenue. On the other hand, having a low ratio means your business has lots of merchandise that are not selling or are not likely to sell anytime soon. Having a low turnover ratio is detrimental to any business. To avoid this situation, you need to keep the inventory as minimized as possible and maintain the maximum level of inventory turnover ratio that is tailored to your own business needs. Adopting an effective inventory management system is the sure way to improve inventory turnover and crush your business goals.
3. How to find the ideal inventory turnover ratio
The approach to your inventory turnover ratio depends on many different factors, such as business size, needs, product types, etc. What is successful for a large business is not necessarily ideal for a small one, and vice versa. Thus, answering the question “what is a good inventory turnover ratio?” is not so simple as there is no one-size-fits-all approach. However, most businesses depend on their own inventory management system or other solutions to improve stock turns, and it all comes with its own pros and cons. For example, spreadsheets work well for displaying data, but they can never match the specialized functionality a good inventory software provides.
BoxHero is a specifically tailored inventory solution for small to mid-sized businesses who are searching for the right answer on how to improve inventory turnover. It is designed by industry experts to let you manage your unique workflow without the risk of stockouts or overstocking.
4. Now, simply calculate the inventory turnover ratio on BoxHero:
① Register Products: Go to BoxHero’s main page > Product List > Add Product
② Process Stock Out: Stock Out from the menu > Select product(s) and quantity > Stock Out
③ Check the Turnover Ratio: Go to Reports > Analysis > See the ratio auto-calculated for you.
If you need to learn more about the inventory turnover ratio and how to use it to maximize sales, click on the link: How to use inventory turnover to maximize sales! The article will give you more information and insights on the subject.
Now, you can improve your inventory turnover with easy-to-use yet powerful metrics calculated automatically. All the records and figures about your business are saved and kept up-to-date. Make your inventory work easy and efficient. BoxHero prevents you from keeping goods sitting around the warehouse and hurting your business.
Try BoxHero for free for 30 days, so you can see firsthand how it can help you take your business to the next level.