What is the average inventory turnover ratio for retail

Rather, you can add the beginning-of-year and end-of-year inventory dollar values and divide by two. Alternatively, you can use the highest and lowest month-end inventory dollar values. A retailer, like every other business, always seeks to grow its sales and consequently its profits. In order to do so, a retailer has to utilize the inventory space it has. There is a fine balance between having too much product on hand and too little. As mentioned previously, too much inventory is costly.

Too little inventory probably means you are compromising on sales. A good inventory turnover ratio for retail is a subjective thing. It depends. Retail encompasses a lot of different types of businesses.

First, I found a good article with turnover ratios for different types of retail businesses. Then, I referenced Census data to find the number of establishments in the U. Then, knowing the number of establishments for each type of retail business, I was able to come up with a weighted-average inventory turn ratio for retail businesses.

In general, you could say that turning inventory over 8 times 7. As you can see by the table, the inventory turnover ratio varies wildly depending on the type of retail business. The range goes from 1. The more durable the products, the lower the turnover.

Cost and shelf life also play a part. You might think the greater the inventory turnover ratio the better. However, there are some exceptions. You could be purchasing goods in lower than ideal quantities, which will eventually lead to higher shipping costs and out-of-stock goods.

Perhaps your prices are too high. Whatever the reason — it translates into products remaining too long on your racks. Storage costs can be high, and they continue to pile up as inventory goes unsold. This doesn't necessarily mean reducing prices across the board; lower prices don't always increase turnover.

Instead, explore the well-established pricing strategies that you may not have considered, such as premium pricing, seasonal pricing, rush delivery, cost-plus pricing, etc. Fortunately, if you have your historical data, this is a simple problem to fix.

There are automated tools that will reorder a company's inventory based on sales data, preventing both overstocking and under-ordering. This process limits excess inventory that's hard to turn over.

Skubana includes a feature that creates purchase orders automatically we call it auto-POS for real-time inventory upkeep. Based on sales velocity data, the inventory optimization software recommends when and how many units of a product to order. Above all, to improve inventory turn, you want to stock what sells. Determining profitability by SKU is critical. Many companies get so caught up in increasing revenue that they compromise profits.

If the time for a single SKU to turn over is too long, then it's draining your resources, even if it eventually sells. It's amazing how many business owners don't know which SKUs are generating profit.

The first step is to calculate your inventory turnover by individual SKU. Don't do this manually, especially if you have thousands of SKUs; you can automate this process with e-commerce inventory optimization software. To find your ITR for the year, divide your total cost of goods sold by your average inventory value.

You can determine the average inventory value by adding together the beginning inventory and ending inventory balances for a single month, and dividing by two. That means you sold and replaced your inventory five times. That is, the period it took you to turn over your inventory. While software is the most accurate way to calculate inventory turnover at a high level of detail, all the information you need for a quick calculation is available on your financial statements.

Plug those numbers into the formula above, or use the calculator below to quickly determine your turnover ratio. Now that you have some ballpark numbers and you know the kinds of factors that affect ideal inventory turnover, it's time to find the perfect turnover rate for your business.

When determining your goal ITR, consider your profit margins; the lower the margin, the faster you need to turn your stock. Also, consider the seasonality of your products and examine the profitability of each SKU. If you're off target, consider incorporating the supply chain and customer-facing solutions we recommended for your business. You won't reach your ideal ratio overnight. Still, with reliable processes in place and a long-term inventory management strategy , you'll be able to strike that balance sooner than you think.

Inventory turnover ratio tells a business whether their sales process and inventory levels are optimized. A high inventory ratio indicates strong sales or insufficient inventory for a particular item, while a low inventory turnover ratio shows that an item is under-marketed or overstocked. Businesses should use inventory turnover to assess which parts of their process require more attention.

Generally speaking, the higher the inventory turnover ratio, the better. However, business owners should be critical of this metric and figure out whether the high turnover ratio is driven by strong sales or inefficient stocking. If it is due to strong sales, then it is a positive indicator. You can improve inventory turnover ratio by improving your sales and marketing initiatives or optimizing your inventory management process.

Some strategies include: discounting, promotional offers, product bundling, improving inventory forecasting, and frequently evaluating inventory. Simply put, using the right tool matters. All of this combined will help your business achieve a better inventory turnover ratio. Someone from our team will contact you shortly. Inventory Management. February 7, 8 min read. What do you want to learn? Your inventory turnover ratio ITR is the number of times you sell all your inventory over a given period such as a year.

A good POS Inventory Management System , can automate the vast majority of what would be manual tasks, saving you time and staffing costs. If you have identified that your inventory turnover is slow, then it may be time to ramp up sales and marketing efforts to try and sell more products. While there is no one size fits all strategy that can be implemented into retail stores to boost sales, there are some strategies that can help.

There are a number of varying factors that can impact inventory levels, including seasonal demand, occasional products, and trends. Because of this, it is important to remove the guesswork and forecast orders and stock levels based upon yearly and quarterly sales figures. Your business's marketing strategy could be a crucial tool in improving inventory turnover rates.

Having a proper marketing plan can allow you to focus on items that sell less and reach more customers. Using all available marketing mediums can help you to grow your business by reaching new audiences and demographics. With an influx of new customers, sales on products can improve which will ultimately improve inventory turnover rates.

Pricing is tricky, especially if your business sells products on a global scale through an ecommerce platform. Most businesses will realise that having a single pricing strategy will not work for every item that is stocked. Because of this, it is best to adopt a multilevel pricing strategy on inventory that is based on relative factors. These can include:. Your point of sale system is the centre of all communication in your retail store.

It needs to be fast, easy to use with a robust feature set to help you effectively manage all aspects of your retail business including inventory. Contact a consultant to learn more about Epos Now! We use cookies to give you the best experience on our site. By continuing, you agree to our use of cookies. Written by Kadence Edmonds.