How to Calculate and Improve Your Inventory Turnover Ratio on Shopify

What Is the Inventory Turnover Ratio?

The inventory turnover ratio measures how many times you sell and replace your entire inventory during a given period. A higher ratio means you're selling products quickly. A lower ratio means inventory is sitting too long, tying up cash and increasing storage costs.

Think of it this way: if your turnover ratio is 6, you're cycling through your entire inventory roughly every two months. If it's 2, your inventory sits for an average of six months before selling.

How to Calculate Inventory Turnover Ratio

The formula is straightforward:

Where:

• Cost of Goods Sold (COGS) is the total cost of all products you sold during the period. You can find this in your Shopify Analytics under Finances → Reports, or calculate it from your accounting software.
• Average Inventory is calculated by adding your beginning inventory value and ending inventory value, then dividing by two: (Beginning Inventory + Ending Inventory) ÷ 2

A Real Example

Let's say your Shopify store had these numbers for 2025:

• Cost of Goods Sold: $480,000
• Beginning Inventory (Jan 1): $100,000
• Ending Inventory (Dec 31): $60,000

Average Inventory = ($100,000 + $60,000) ÷ 2 = $80,000

Inventory Turnover Ratio = $480,000 ÷ $80,000 = 6.0

This means you sold through your entire inventory six times during the year, or roughly every 61 days.

Days Sales of Inventory (DSI)

To convert your turnover ratio into the average number of days it takes to sell your inventory:

Using our example: 365 ÷ 6.0 = 60.8 days. This is the average time a product sits in your inventory before being sold.

What's a Good Inventory Turnover Ratio?

There's no universal "good" number — it depends heavily on your industry, product type, and business model. Here are typical benchmarks for e-commerce:

Industry / Product Type	Typical Turnover Ratio	Days Sales of Inventory
Grocery / Perishables	14 – 20	18 – 26 days
Fashion / Apparel	4 – 6	61 – 91 days
General E-commerce	4 – 8	46 – 91 days
Electronics	5 – 8	46 – 73 days
Home & Garden	3 – 5	73 – 122 days
Luxury / High-Value	2 – 4	91 – 183 days

The sweet spot for most Shopify merchants is a turnover ratio between 4 and 8. Below 4 typically means you're holding too much inventory or have slow-moving SKUs. Above 10 could mean you're frequently running low and risking stockouts.

Why Inventory Turnover Matters for Shopify Merchants

Your turnover ratio directly impacts three critical areas of your business:

1. Cash Flow

Every dollar sitting in unsold inventory is a dollar you can't spend on marketing, new products, or growth. A low turnover ratio means your cash is locked up in merchandise that isn't generating revenue. For bootstrapped Shopify merchants, this can be the difference between scaling and stagnating.

2. Storage and Holding Costs

Slow-moving inventory incurs ongoing costs: warehouse fees, insurance, potential spoilage or obsolescence. Industry estimates put annual holding costs at 20–30% of inventory value. If you're holding $100,000 in average inventory, that's $20,000–$30,000 per year just to store it.

3. Product Freshness and Relevance

Products that sit too long can become outdated, especially in fashion, electronics, and seasonal categories. A healthy turnover ratio means your customers are always getting fresh, relevant products — which drives repeat purchases and stronger reviews.

8 Strategies to Improve Your Inventory Turnover Ratio

1. Use Data-Driven Demand Forecasting

The number one reason for poor turnover is ordering too much of the wrong products. AI-powered forecasting tools like Stock Perfect analyze your historical sales data, seasonality patterns, and market trends to predict exactly how much inventory you'll need. This prevents over-ordering and ensures you're stocking what actually sells.

2. Identify and Clear Dead Stock

Dead stock — products that haven't sold in 90+ days — drags your turnover ratio down significantly. Run a dead stock audit quarterly:

• Pull your Shopify inventory report sorted by "days since last sale"
• Flag anything that hasn't moved in 90 days
• Decide: discount, bundle, donate, or liquidate

Even selling dead stock at a loss frees up cash and warehouse space for products that actually move.

3. Optimize Your Reorder Points

Reorder points that are too high lead to overstocking. Too low, and you risk stockouts. The optimal reorder point balances both:

Stock Perfect calculates dynamic reorder points for every SKU based on real-time sales velocity and supplier lead times, so you're never holding more inventory than necessary.

4. Negotiate Shorter Supplier Lead Times

Longer lead times force you to order larger quantities further in advance, increasing your average inventory. Work with suppliers to:

• Reduce minimum order quantities (MOQs)
• Establish more frequent, smaller shipments
• Set up vendor-managed inventory (VMI) arrangements
• Identify backup suppliers with faster turnaround

5. Implement ABC Analysis

Not all SKUs deserve equal attention. ABC analysis categorizes your inventory by revenue contribution:

• A items (top 20% of SKUs, ~80% of revenue): Monitor daily, optimize aggressively, never run out
• B items (next 30%, ~15% of revenue): Review weekly, moderate safety stock
• C items (bottom 50%, ~5% of revenue): Review monthly, minimize inventory levels, consider dropping underperformers

Focusing your optimization efforts on A items gives you the biggest turnover improvement for the least effort.

6. Run Strategic Promotions on Slow Movers

Instead of across-the-board sales that cannibalize full-price revenue, target promotions specifically at slow-moving inventory:

• Bundle slow movers with bestsellers
• Create flash sales for specific categories
• Offer quantity discounts ("buy 2, get 10% off")
• Use email segments to target customers who've browsed but not purchased these items

7. Improve Your Product Listings

Sometimes low turnover isn't an inventory problem — it's a conversion problem. Products that don't sell might just need better presentation:

• Upgrade product photography
• Write detailed, benefit-focused descriptions
• Add customer reviews and social proof
• Optimize for search (both Shopify site search and Google)

8. Track Turnover by SKU, Not Just Overall

Your overall turnover ratio can mask problems at the SKU level. A few bestsellers might be turning over rapidly while dozens of other products barely move. Stock Perfect's analytics dashboard shows turnover metrics per product and variant, making it easy to spot which specific SKUs need attention.

How to Track Inventory Turnover in Shopify

Shopify doesn't display your turnover ratio directly, but you can calculate it using data from two places:

1. COGS: Go to Analytics → Reports → Finances → "Cost of goods sold" (requires tracking product costs in Shopify)
2. Average Inventory: Use Analytics → Reports → Inventory → "Month-end inventory snapshot" to get beginning and ending values

For automated tracking, inventory management apps like Stock Perfect calculate turnover ratios automatically and alert you when specific products fall below your target thresholds.

Common Mistakes When Analyzing Turnover

• Using revenue instead of COGS: Always use cost of goods sold, not sales revenue. Revenue includes your markup and inflates the ratio.
• Ignoring seasonality: A yearly ratio smooths out seasonal peaks and valleys. Calculate quarterly ratios too, especially if your business is seasonal.
• Comparing across industries: A turnover ratio of 3 is excellent for luxury goods but concerning for consumables. Compare against your own industry benchmarks.
• Looking only at the aggregate: Always drill down to SKU-level analysis. Your overall ratio might look healthy while individual products are stagnant.

Conclusion

Your inventory turnover ratio is more than just a number — it's a direct reflection of how efficiently your Shopify business converts inventory into profit. By calculating your ratio regularly, benchmarking against industry standards, and implementing the strategies above, you can free up cash, reduce holding costs, and build a more profitable store.

Start by calculating your current ratio today. Then focus on the highest-impact strategies: clear dead stock, implement demand forecasting, and optimize your reorder points. Even small improvements in turnover can translate to significant gains in cash flow and profitability.