![]() ![]() However, it’s good to know how to do it, which helps understand the metric deeper.Īverage inventory is the mean value of inventory that a company holds over a given period (like a month, quarter, year, etc.). So to find your COGS, you look through your income statement, and there it is. Manual calculation is no longer necessary since there’s a wide choice of automated solutions doing accounting for Shopify, Amazon, or any other e-commerce platform. COGS = Initial inventory + Additional inventory costs – Ending inventory To get your COGS, you’ll add the cost of purchased goods (including the associated costs) during a given period to your initial inventory for the same period and extract your ending inventory for this period. So apart from pure costs per item, it may include freight and other expenses associated with getting the goods to your warehouse. So let’s get acquainted with those first.Ĭost of goods sold (COGS) is the cost of acquiring the products that an e-commerce company sells during a given period. To calculate the inventory turnover ratio, you’ll need to define several metrics, such as the cost of goods sold (COGS) and average inventory. How do you calculate inventory turnover ratio? Let’s now see how to calculate the inventory turnover ratio. This way, the company can build a balance in which the goods are never stale in the warehouse for a long time, but at the same time, they’re always in the required quantity.Ī business with a higher inventory turnover ratio is likely to react better to the demand, have lower carrying costs per item, and gain more revenue than that with a low inventory turnover. Regularly monitoring the inventory turnover ratio gives a more accurate view of how timely goods are purchased and sold. It also allows for identifying unused and obsolete stock. The metric helps determine the overall quality of the inventory management in a company and the efficiency at converting stock into sales. ![]() Inventory turnover is a financial ratio that defines how many times a company has sold and replaced inventory within an accounting period (a month or a year, or else). How to optimize inventory turnover: 4 actionable tips How does having low or high inventory turnover affect your business?ĥ. What is a good inventory turnover ratio?Ĥ. How do you calculate inventory turnover ratio?ģ. Let’s look in more detail at what a good inventory turnover ratio is, what can affect it, positively or negatively, and how to solve the most frequent inventory turnover challenges.Ģ. That’s why keeping an eye on inventory turnover is key to ensuring flawless e-commerce business operations. Inefficient inventory management can dramatically affect cash flow for your e-commerce business, with a large amount of working capital sucked up by the excess stock or sales lost due to stock shortages. For an e-commerce business, inventory is one of the most significant parts of management. ![]()
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