Inventory Turnover, Sell Through Rate, and Other Inventory Metrics

As you manage your inventory, you'll find that a number of key metrics can help you to understand what exactly is happening with your business and your inventory. These metrics can help you to help answer key questions:

Which products are holding too much inventory and increasing storage costs?
Which products are turning over so quickly that they're hitting stockouts and losing potential sales?
Which products have a high profit on investment?
How much profit am I actually making on a product when factoring in shipping costs, selling channel fees, and marketing to acquire the customer?

Which metrics are useful to track?

In managing your inventory, some of the key metrics to track across your stock include:

Average Inventory -- for a specified time period, what was the average inventory value?
Inventory Turnover Ratio -- for a specified time period, how many times did you go through all of your inventory?
Sell Through Rate -- for the specified time period, what percentage of your starting stock quantity did you sell?
GMROI -- what was the gross profit return from your investment in stock?
Contribution Profit -- what was the actual end profit from a product including shipping costs, channel selling fees, marketing expenses, and other variable expenses?
Dead Stock -- what stock has been sitting in your inventory for a long time and needs to be cleared out in some way?

What is Inventory Turnover Ratio?

The inventory turnover ratio measures how many times a company sells and replaces its inventory over a specific period, indicating the efficiency of inventory management and sales performance. For more information, see Inventory Turnover.

What is Sell Through Rate?

Sell-through rate is the percentage of inventory sold within a specific period, indicating how quickly products are moving off the shelves compared to the amount available for sale. For more information, see Sell Through Rate.

What is GMROI?

Gross Margin Return on Investment (GMROI) evaluates the profitability of your products by measuring the gross margin generated for every dollar invested in inventory. For more information, see GMROI.

What is contribution margin?

Contribution margin is the difference between sales revenue and variable costs, indicating how much money is available to cover fixed costs and generate profit. For more information, see Contribution Margin.

What is dead stock?

Dead stock refers to unsold inventory that remains in stock for an extended period and is unlikely to be sold in the future, leading to financial losses for a business. For more information, see Dead Stock.