How many times your inventory sells out and replenishes in a period. Higher is better — until you stock out.
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Inventory turnover measures how many times you sell through and replenish your inventory in a period. A turnover of 6× means you sell your entire inventory 6 times per year (roughly every 2 months). Higher is generally better — capital isn't tied up in stock — until you start stocking out.
Inventory turnover = COGS ÷ average inventory
Days of inventory = 365 ÷ turnover
It depends heavily on category:
For dropshippers who don't hold stock (the supplier holds it), turnover is less relevant — but if you private-label or hold bestsellers, it's a key metric. Turnover below 2× means you're tying up capital for over 6 months at a time.
| Input | Value |
|---|---|
| Annual COGS | $50,000 |
| Average inventory | $5,000 |
| Turnover | 10.00× per year |
| Days of inventory | 37 days |
| Weeks of supply | 5.3 weeks |
10× turnover is healthy. You hold about 5 weeks of supply at any time. If turnover drops to 4× (91 days of supply), you may be overstocked. If it rises to 20× (18 days), you may be at risk of stocking out.
When to reorder so you don't stock out, given lead time and daily sales. Critical for dropshippers with private-label stock.
Project monthly cash flow from sales, costs, ad spend, and payment-processor payout lag. Find the gap before it finds you.
How many units you need to sell to cover fixed costs (Shopify plan, apps, ad budget). The line between red and black.
Even dropshippers hold some inventory — samples, private-label stock, bestsellers. Here's how to size it without overcommitting cash.