What Is Inventory Turnover? The Speed Your Money Makes Money

Inventory turnover tells you how many times per year you sell and replace your entire inventory. A turnover of 12 means you're selling everything monthly. A turnover of 4 means quarterly. The difference? One is a business, the other is an expensive storage unit.

Here's the brutal truth: most e-commerce sellers obsess over revenue while their inventory turnover slowly kills them. You can have €1 million in sales and still go bankrupt if your inventory doesn't turn fast enough.

The Simple Math That Changes Everything

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory Value

Sell €120,000 worth of goods yearly with €10,000 average inventory? That's a turnover of 12. You're cycling your entire stock monthly. Your money is working hard.

Same €120,000 in sales but €40,000 average inventory? That's a turnover of 3. You're sitting on stock for four months. Your money is barely breathing.

The impact on cash flow is massive. With a turnover of 12, that €10,000 investment generates €120,000 in sales. With a turnover of 3, you need €40,000 to generate the same sales. That's €30,000 that could be spent on marketing, new products, or staying in your bank account.

Why Low Turnover Kills E-commerce Businesses

Every day inventory sits, it costs money. Storage fees, insurance, handling costs—figure 20-30% annually. But that's just the beginning.

Aged inventory is cancer for e-commerce. Products become outdated, packaging yellows, Amazon slaps "long-term storage fees" on slow movers. Fashion items lose relevance after one season. Electronics depreciate monthly. Even non-perishables suffer from changing consumer preferences.

Here's the death spiral: Low turnover means high inventory investment. High inventory means less cash for marketing. Less marketing means slower sales. Slower sales means even lower turnover. Eventually, you're a warehouse, not a business.

The Optimal Turnover by Product Type

Different products have different healthy turnover rates:

Fashion/Apparel: 4-6 times yearly minimum. Anything less and you're selling last season's trends at clearance prices.

Electronics: 8-12 times yearly. Tech depreciates too fast for slow turnover.

Home & Garden: 6-8 times yearly. Seasonal items need even higher turnover during their peak season.

Beauty/Cosmetics: 8-10 times yearly. Expiration dates and trend cycles demand speed.

Books/Media: 2-4 times yearly can work. Evergreen content doesn't depreciate like physical goods.

If your turnover is below these benchmarks, you're bleeding money. If it's way above, you might be understocking and losing sales.

How to Calculate Your True Turnover

Most sellers calculate turnover wrong. They use year-end inventory instead of average inventory, giving false comfort.

Do it right:

1. Calculate monthly average inventory for 12 months
2. Add them up and divide by 12
3. Divide annual COGS by this number

Example: January €10,000, February €12,000... December €15,000. Average = €11,000. Annual COGS = €132,000. Turnover = 12.

But here's what matters more: turnover by SKU. Your bestsellers might turn 20 times yearly while dead stock turns 0.5 times. Average turnover hides the zombies eating your capital.

The Fast Turnover Playbook

Kill the zombies: Any SKU with turnover below 2 needs to go. Liquidate, bundle, donate—just get it out. Every zombie SKU is money that could be working.

Stock winners: High-turnover items deserve more inventory investment. If something turns 15+ times yearly, stock more. The velocity pays for the investment.

Shorter payment terms: The faster you pay suppliers, the better prices you get. But only if your turnover is fast enough to support it. Turnover of 12? You can handle NET30. Turnover of 3? You need NET60 or you'll run out of cash.

Multiple smaller orders: Instead of ordering 1,000 units quarterly, order 250 monthly. Yes, unit cost might be slightly higher. But the improved turnover more than compensates through reduced carrying costs and risk.

How Stockpilot Accelerates Turnover

Stockpilot's AI forecasting prevents the #1 turnover killer: overordering. The system knows your real velocity per SKU, per channel, considering seasonality. No more guessing that leads to excess inventory.

The multi-channel sync ensures inventory moves where it sells fastest. If Amazon velocity is 3x your website, the system suggests reallocating stock. Dead inventory in one channel becomes fast-moving in another.

Automatic reorder points based on actual turnover, not gut feeling. When that fast-mover drops to the reorder point, you know immediately. No stockouts that force customers to competitors, no overordering that kills turnover.

The Bottom Line

Inventory turnover is the heartbeat of your e-commerce business. Too slow, and you suffocate on carrying costs. Too fast, and you might be understocking and losing sales.

The sweet spot for most e-commerce: 8-12 times yearly overall, with A-items turning 12-15 times and C-items at least 4-6 times. Anything sitting longer than 90 days is a red flag. Anything sitting longer than 180 days is an emergency.

Stop measuring success by revenue alone. A €100k/month business with turnover of 12 is healthier than a €200k/month business with turnover of 3. The first is building wealth. The second is building a warehouse.