we’ll break down everything you need to know about inventory turnover ratio, its impact on fulfillment, and how Daguer Logistics helps eCommerce companies stay lean and profitable.
Inventory management is the lifeline of every eCommerce business. Among the many KPIs that dictate a brand's success, the inventory turnover ratio is one of the most telling. It reveals how efficiently a company is managing its inventory, and by extension, its capital, storage space, and sales cycle.
For growing brands and established retailers alike, understanding how to calculate and optimize inventory turnover is critical. In this enhanced guide, we’ll break down everything you need to know about inventory turnover ratio, its impact on fulfillment, and how Daguer Logistics helps eCommerce companies stay lean and profitable.
Inventory turnover ratio is a financial metric that indicates how many times a business sells and replaces its inventory during a specific time period, usually annually. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value:
For example, if a business had $500,000 in COGS last year and an average inventory of $95,000, the inventory turnover ratio would be:
This means the business sold and replaced its inventory 5.26 times in that year.
Monitoring your inventory turnover ratio provides valuable insights that can drive key business decisions. Here are a few reasons why it’s vital for eCommerce operations:
· Optimize Cash Flow: Avoid overstocking and understocking.
· Improve Warehouse Efficiency: Keep only what sells, reduce space requirements.
· Forecast Demand More Accurately: Understand what’s moving and what isn’t.
· Support Smarter Purchasing: Time your purchase orders better.
A high inventory turnover often signals strong sales. Tracking this KPI over time helps brands evaluate the effectiveness of marketing, pricing, and product mix.
Calculating inventory turnover at the product level shows which SKUs are your best sellers. This helps you double down on high-margin or high-turnover items.
By reviewing historical turnover data, businesses can predict seasonal demand and avoid both dead stock and stockouts.
Inventory that lingers increases storage costs. Fast turnover reduces your inventory carrying cost and improves ROI per square foot of warehouse space.
If you know exactly how much inventory you need and when, you can negotiate better deals and lead times with manufacturers.
There are two main approaches to calculating this ratio:
This approach works well for analyzing SKU-level performance, particularly for high-volume eCommerce stores.
· Indicates efficient inventory use
· Suggests high demand and healthy cash flow
· Reduces holding costs
· However, could also lead to stockouts if not replenished quickly
· Suggests slow-moving inventory or overstocking
· Ties up capital and increases storage costs
· Can signal poor product-market fit or inefficient marketing
Most retailers aim for a turnover ratio between 2 to 4. This means they sell and replace their inventory every 3 to 6 months. However, industry standards vary:
· DSI = (Average Inventory / COGS) x 365
· Shows how many days it takes to turn inventory into sales.
· Compares inventory levels to net sales.
· Higher ratio = potential inefficiencies.
These ratios complement your turnover rate to paint a complete picture of inventory efficiency.
At Daguer Logistics, we help our eCommerce clients optimize every aspect of the fulfillment process and that starts with inventory management. Here’s how turnover rates shape your logistics strategy:
Products with low turnover often clutter valuable warehouse space. We help identify SKUs that should be discontinued, kitted, or liquidated.
High-turnover SKUs are stored in fast-pick zones. This shortens picking time and improves throughput.
Using your turnover data, we help you plan restocks and PO frequency more effectively.
Low-turnover or seasonal inventory can be moved to more cost-effective surplus warehousing within our network.
Our advanced warehouse management system (WMS) tracks turnover rates per SKU in real time. Benefits include:
· Automated reorder alerts
· Low-stock warnings
· Historical sales trends
· SKU-level performance analytics
We integrate with your Shopify, Amazon, BigCommerce, or ERP system to ensure a single source of truth.
Dead stock is inventory that has never been sold or has been sitting unsold for too long. Poor turnover can indicate growing dead stock risk.
How Daguer Logistics Helps Eliminate Dead Stock:
· Identify aging inventory early
· Create discount bundles to promote slow sellers
· Offer liquidation support or donation options
Always compare turnover within the same quarter year-over-year to account for seasonal demand.
A SKU with very high turnover might be frequently out of stock. That’s lost revenue. Balance is key.
Turnover should always be based on COGS for an accurate reflection of inventory movement.
If your suppliers have long lead times, even high-turnover SKUs may cause stockouts if you don't replenish on time.
Here are the top ways we help our clients improve their turnover rate:
1. Streamlined SKU onboarding: Reduce time to market
2. Multi-location fulfillment: Ship from the closest warehouse to reduce lead time
3. Real-time inventory visibility: Avoid understocking and overstocking
4. Automated replenishment logic: Based on sales velocity
5. Demand planning tools: Forecast future demand accurately
Optimize Your Fulfillment with Inventory InsightsUnderstanding and managing your inventory turnover ratio is essential for running a profitable, scalable eCommerce operation. It influences everything — from storage needs and cash flow to marketing, merchandising, and customer satisfaction.
At Daguer Logistics, we help you do more than just store and ship your products. We become a partner in your growth by giving you the tools and insights to manage your inventory smarter.
Want to improve your inventory turnover ratio and streamline your fulfillment operations? Contact Daguer Logistics today to learn how we can help.
For most eCommerce retailers, a turnover ratio between 2 and 4 is considered healthy, but it depends on the product category.
Monthly or quarterly tracking is recommended for fast-moving industries; semi-annually may be sufficient for slower niches.
Daguer Logistics' WMS, along with platforms like Shopify, Amazon Seller Central, and inventory management software, provide real-time tracking and alerts.
Yes. We offer surplus storage, liquidation options, and bundling strategies to help you move stagnant inventory.
Higher turnover means more frequent shipping, which impacts storage, packaging, and transportation costs. Daguer helps balance these with efficient processes.
