Whether you are a small store or a large mail order company, everyone needs one thing to be successful in eCommerce: an overview of stock movements and inventories. A key indicator here is the inventory turnover rate. It reveals how often the stock turns completely in a period of time, i.e. how often the entire stock is sold and replenished.
A high inventory turnover in online business is usually a sign of efficient processes. A low inventory turnover rate can indicate capital commitment, outdated goods or incorrect purchasing decisions. However, several factors play a role in the interpretation.
In this article we explain:
- how you calculate the turnover rate
- what role key warehouse figures such as cost of sales and stock levels play and
- how you can ensure greater efficiency in the warehouse with the right measures.
How can you calculate the turnover rate? - Formula with explanation
The inventory turnover rate can be calculated using a simple formula:
Inventory turnover rate = cost of goods sold / average stock level
The cost of goods sold is the consumption of goods, i.e. the value of all goods sold in a certain period. You can calculate the cost of goods sold as follows:
Cost of goods sold = opening stock + receipts – closing stock
Alternatively, the cost of goods sold is taken directly from the accounting system, for example as the annual value of goods sold.
The average stock level shows how many goods were in stock on average. You can calculate it using a simple rule of thumb:
(opening balance + closing balance) / 2
Tip: For more precise evaluations, especially in the case of highly fluctuating stocks, we recommend a calculation on a monthly basis.
Briefly explained
The inventory turnover rate is an inventory ratio that indicates how often the average stock is sold in full in a period of time. It is calculated as the cost of goods sold divided by the average stock level.
How does the calculation of the turnover rate work in practice? - An example
An online retailer would like to know how often his stock has “rotated” in 2024. He uses the following figures from his accounting and ERP as a basis:
- Cost of goods sold 2024: 120,000 euros
- Opening balance: 20,000 euros
- Closing balance: 40,000 euros
First it calculates the average stock level:
(20,000 euros + 40,000 euros) / 2 = 30,000 euros
He then enters the values into the formula for the turnover rate:
120,000 euros / 30,000 euros = 4
Inventory turned over completely four times in 2024. Depending on the industry and product type, this may be a solid figure or one that could be improved. In the next section, we explain how the key figure can be interpreted and what conclusions can be drawn from it.
What does a high or low turnover rate mean?
The inventory turnover rate is a central warehouse key figure for customer review of warehouse performance. It provides important information on the efficiency of warehousing and helps to better manage storage costs, capital commitment and liquidity:
Important: The turnover rate cannot be assessed across the board. This is because different turnover rates make sense depending on the industry, product type and business model.
Some examples:
- High turnover rates are common in the fast fashion and food retail sectors, sometimes on a weekly basis.
- In the technology trade, furniture or industrial supplies, a lower turnover rate can be normal because warehousing is necessary to ensure delivery capability.
- Envelopes are less common for high-priced products such as machines or jewelry. The focus is more on the margin and the quality of the stock.
It therefore makes sense to regularly analyze your own inventory turnover rate – over time, in comparison with industry-typical values and in relation to individual product groups or items. This allows you to identify potential for improvement and make targeted strategic decisions in purchasing or warehouse logistics.
How can you improve inventory turnover in online business? - 5 concrete measures
If you want to increase your inventory turnover rate, there are several things you can do, from purchasing to the product range to warehouse organization. The following measures will help you to optimize the flow of goods and keep stock levels lean:
1. analyze and streamline product range
Unprofitable or slow-moving items block storage space and capital. A regular look at the key stock figures, for example with the help of the ABC analysis, helps to critically review the product range: Which items are selling well? Which ones are left lying around? Less is often more, especially if it means that fast-moving products are given more space.
ABC analysis is a business management method used to classify products according to their value or importance for a company, for example according to turnover, sales volume or stock turnover.
- A products usually account for a high proportion of sales (e.g. 70-80%), although they only represent a small proportion of the number of items (e.g. 10-20%). They are particularly important and should be closely monitored.
- B products are in the midfield. They are of medium importance and should be analyzed regularly.
- C-products only account for a small proportion of sales, but often take up a lot of storage space. They are ideal for streamlining the product range or for special promotions.
With the ABC analysis, stock levels can be optimized in a targeted manner, e.g. through better prioritization in purchasing, space allocation or sales promotion.
2. improve purchasing planning
Ordering too much on spec quickly leads to overfilled warehouses. If you make purchasing decisions based on real sales data, ideally supported by an inventory management system, you can calculate more accurately and optimize stock levels. Also take seasonal fluctuations and trends into account.
3. use targeted sales campaigns
Slow-moving items can often be sold off more quickly through targeted discount campaigns, bundles or cross-selling measures. At the same time, sales can be used to create space for new products and thus accelerate the overall stock turnover.
4. optimize delivery times and minimum stock levels
The faster new goods can be reordered and delivered, the lower the stock levels need to be kept. Flexible supply chains, optimized minimum stock levels and automatic purchase order proposals allow stocks to be better managed without jeopardizing the ability to deliver.
5. improve warehouse organization
A well-structured warehouse not only makes order preparation easier, but also makes it easier to control the movement of goods. If you store items according to turnover rate (e.g. fast-moving items close to the packing stations), you save time and recognize more quickly where stock is unnecessarily accumulating.
How JTL-Wawi and JTL-WMS support you in analyzing and optimizing the turnover rate
You need more than just Excel spreadsheets to not only calculate your inventory turnover rate, but also to improve it in the long term. With the right digital tools, warehouse key figures can be automatically recorded, evaluated and used strategically.
JTL-Wawi and JTL-WMS are the perfect tools for this:
JTL-Wawi
As a central ERP system, JTL-Wawi offers you a comprehensive database for all relevant key stock figures. You can view the cost of goods sold, the average stock level and many other figures directly in the system, without any manual calculations.
Integrated statistics and item analyses can be used to evaluate products according to sales behavior, storage duration or sales strength. This makes it immediately clear which items are performing well and which are slowing down stock turnover.
In addition, JTL-Wawi actively supports you with optimization:
- Purchase order proposals based on actual sales figures help to plan quantities accurately.
- Minimum stock warnings prevent out-of-stock situations without overfilling warehouses.
- Integration with other JTL components (e.g. JTL-eazyAuction, JTL-Shop) means that all sales data flows together centrally. This creates a uniform basis for decision-making.
JTL-WMS
As a warehouse management system, JTL-WMS provides you with real-time data on goods movements and warehouse statuses. Items with a high turnover rate can be specifically placed in quickly accessible storage zones in order to shorten picking routes and make processes more efficient. At the same time, movement data can be used to dynamically adapt warehouse strategies – for example in the event of seasonal fluctuations or changes in demand behavior.
The interaction between JTL-Wawi and JTL-WMS enables you as an online retailer to monitor warehouse key figures and actively use them for control and optimization. This turns a theoretical key figure such as inventory turnover rate into a real lever for greater efficiency, liquidity and customer satisfaction.
Conclusion: Why it is worth looking at the turnover rate
Inventory turnover is much more than just a number. It is an important indicator of warehouse efficiency and the quality of a product range. If you analyse it regularly, you will recognize early on where capital is tied up, which products have potential and where processes can be optimized. With the right data basis and digital support from tools such as JTL-Wawi and JTL-WMS, a theoretical key figure becomes a practical control instrument. You can reduce storage costs, ensure delivery capability and develop your business in a targeted manner.
