Here’s another post where I write about the valuable information that can be found on the Census website. Then, I referenced Census data to find the number of establishments in the U.S. Here’s how I went about answering this question.įirst, I found a good article with turnover ratios for different types of retail businesses. Retail encompasses a lot of different types of businesses. Too little inventory probably means you are compromising on sales.Ī good inventory turnover ratio for retail is a subjective thing. As mentioned previously, too much inventory is costly. There is a fine balance between having too much product on hand and too little. In order to do so, a retailer has to utilize the inventory space it has. What exactly is a “good” inventory turnover ratio for retail?Ī retailer, like every other business, always seeks to grow its sales and consequently its profits.
It doesn’t matter which you use, as long as you’re consistent. Alternatively, you can use the highest and lowest month-end inventory dollar values. Rather, you can add the beginning-of-year and end-of-year inventory dollar values and divide by two. It’s not necessary or practical to figure the average based on day-to-day or hour-to-hour levels. To be honest, average inventory is approximated. Using average inventory to calculate stock turn will yield more accurate results. Thus, in order to reflect precise and accurate figures, an average is used in the calculation. It can be disproportionately high at one point in the year and disproportionately low at another. The term “average inventory” is noteworthy because, at any specific time, the value of your inventory can drastically change.
Inventory turnover = cost of goods sold (COGS) ÷ average inventory The formula used for determining retail inventory turnover is: