Inventory Turnover Formula: Examples + Free Template (2026)

Inventory turnover tells you how many times you sold and replaced your stock in a year. A low number means cash is sitting on the shelf instead of moving through your business.

Slow inventory is cash you can't spend.#

Every dollar tied up in stock that isn't selling is a dollar you can't use for rent, payroll, or your next order. Turnover is the single ratio that exposes it. Calculate it once and you immediately know whether you're holding too much.

The formula#

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory

Average inventory = (beginning inventory + ending inventory) / 2, valued at cost. To convert turnover into days, use:

Days Inventory Outstanding (DIO) = 365 / Inventory Turnover

A turnover of 6 means you cycle through stock six times a year, or about every 61 days.

Don't want to do the arithmetic? Use the free inventory turnover calculator -- enter COGS and your start/end inventory values and it returns turnover, days inventory outstanding, and how you compare to the benchmark range for your sector. No signup, nothing saved.

COGS vs revenue -- which goes in the numerator#

The most common mistake operators make is plugging sales revenue into the numerator instead of COGS. Revenue includes your markup; inventory on the balance sheet is recorded at cost. Mixing the two inflates turnover and makes a slow business look healthy.

Quick illustration: a store with $480,000 in revenue, $300,000 in COGS, and $80,000 average inventory turns 3.75x using COGS, but 6.0x if you wrongly use revenue. Same store, same shelves -- one number is real, the other is vanity. If you only have revenue handy, multiply by your average cost-of-sales ratio to get a workable COGS estimate before dividing.

Turnover vs days inventory -- when to use each#

Turnover and DIO carry the same information in different units, but they land differently with different audiences. Operators almost always prefer DIO -- "we have 61 days of stock on hand" is something you can act on tomorrow by trimming a reorder. Finance and investors tend to prefer the turnover ratio because it slots cleanly into working-capital and ROA comparisons across periods and peers. Pick one for internal reporting and stick with it so trends stay readable.

Worked example: a retail store#

A store reports $480,000 COGS for the year. Inventory was $70,000 in January and $90,000 in December, so average inventory is $80,000.

Turnover = $480,000 / $80,000 = 6.0

DIO = 365 / 6.0 = 61 days

Six turns is solid for general retail. If the same store carried $160,000 in average inventory, turnover drops to 3.0 and DIO doubles to 122 days -- the same sales on twice the cash.

Worked example: a manufacturer#

Manufacturers split inventory into raw materials and finished goods, and the two turn at different speeds. Take a custom cabinet shop with these inputs: $600,000 COGS, $150,000 average raw materials, and $50,000 average finished goods.

Turnover = $600,000 / $200,000 = 3.0

Raw materials sitting for months are the usual culprit. Tying purchasing to committed demand from open work orders -- rather than forecasts alone -- keeps raw stock lower without starving production. For high-volume, low-cost components (fasteners, edge banding, hinges), vendor-managed inventory (VMI) or a simple two-bin kanban with your supplier can take those SKUs off your books entirely while keeping production fed. (IQ's Work Orders and committed-demand forecasting are part of the $349/mo Enterprise tier.)

Worked example: multiple locations#

Blended turnover hides location problems. Two warehouses each do $300,000 COGS. Warehouse A holds $50,000 average inventory (turnover 6.0); Warehouse B holds $120,000 (turnover 2.5).

Blended, they look like $600,000 / $170,000 = 3.5 -- acceptable. Per location, B is the leak. Always calculate turnover per location before trusting the company-wide number.

What's a good turnover ratio?#

Benchmarks vary widely by category. Use these as directional ranges, then compare against your own sector:

*Ranges compiled from CSIMarket (Q4 2025), Netstock, and APICS benchmarks, retrieved May 2026. Benchmarks shift by source and year -- treat them as directional, not targets.*

The spread isn't random. Grocery turns 10-15x because perishability forces it -- milk and produce expire on a clock, and razor-thin grocery margins only work if cash recycles fast enough to cover fixed costs. Furniture sits at the other end at 3-5x because the average ticket is high, many sales involve custom orders or special finishes, and the buying cycle stretches over weeks. Showroom floor space also forces retailers to hold variants customers want to see in person. The directional rule: the more perishable or commoditized the category, the higher the expected turn; the more configurable or considered the purchase, the lower.

How to improve a low turnover ratio#

1. Calculate your current turnover and DIO using the formula above.
2. Segment turnover by product class or location so fast sellers don't mask slow ones.
3. Cut reorder quantities on items below your benchmark instead of buying in bulk.
4. Tighten reorder points using actual daily sales and lead time.
5. Clear dead stock -- anything with no movement in 90 days -- through discounts, bundles, or supplier returns.
6. Recheck monthly and compare the trend against your industry range.

Common mistakes#

• Using sales revenue instead of COGS in the numerator, which inflates the ratio.
• Using a single month-end snapshot instead of average inventory.
• Reading one company-wide number while a single location or category drags it down.
• Chasing a high ratio so hard you create stockouts -- turnover and service level move together.

Free template#

Drop this into a Google Sheet. Put COGS in B1, beginning inventory in B2, ending inventory in B3:

• Average inventory -- =(B2+B3)/2
• Inventory turnover -- =B1/((B2+B3)/2)
• Days inventory outstanding -- =365/(B1/((B2+B3)/2))

Duplicate the three cells per location or product class to spot the laggards.

If you'd rather not build the sheet, the inventory turnover calculator does the same three formulas in your browser and adds the sector benchmark comparison from the table above.

InventoryQuick computes your annualized inventory turnover ratio automatically from real stock movements -- open the Analytics tab to see the live number, no spreadsheet required. You can also ask the IQ Assistant something like *what is my inventory turnover this month?* and it will pull the answer from your data.

InventoryQuick starts at $19/mo -- Start your 7-day free trial

Related: Inventory Turnover Calculator (free tool) - Dead Stock Finder (free tool) - Reorder Point Formula - Safety Stock Formula - How to Prevent Stockouts