Inventory Turnover – Definition, Calculation & Benchmarks

What is Inventory Turnover? 

Inventory turnover describes how often the average inventory is sold or consumed within a given period.

It is a key metric for evaluating capital tied up in inventory.

How is it calculated?

Formula:

Cost of goods sold ÷ average inventory

Example:

Cost of goods sold: €1,000,000
Average inventory: €200,000

→ Inventory turnover = 5

Benchmarks

• E-commerce: 8–12
• Industry: 4–8
  

Significance

High inventory turnover means:

• low capital commitment
• fast inventory movement
• efficient processes

Low turnover indicates:

• excess inventory
• weak demand
• inefficient planning

Optimization Opportunities

• assortment optimization
• better forecasting
• reduction of slow movers
• closer alignment with procurement

Typical Mistakes 

👉 Too high turnover can also be problematic:

• increased out-of-stock risks
• reduced delivery capability

Relation to other KPIs

• inventory coverage
• inventory availability
• forecast accuracy

Practical Example

A retailer reduces its inventory:

• before: turnover 5
• after optimization: turnover 9

→ significantly reduced capital tied up

❓ FAQ

Conclusion

Inventory turnover is a key indicator of efficiency and capital utilization in the warehouse.

👉 The goal is to balance availability and capital commitment.