Similarly, restocking too late is not good, either. Is your 3PL inventory tracking system missing inventory in its reports to you, causing you to over-order inventory? Have you ordered products that are hot-selling now, then obsolete later? Is lack of proper market or product research over-inflating buyer demand? To continue, if your products end up sitting in your warehouse for months, it means you don’t have an efficient inventory management process that prevents you from over-ordering, overestimating demand, and ordering products your customers don’t want to buy. While this isn’t a conversation around sell-through on Amazon, it is important to understand that distinction so things are clear moving forward. This is a very different calculation than what we are talking about with inventory turnover ratio. “Your FBA rolling 90-day sell-through rate is the number of your units sold and shipped over the past 90 days divided by the average number of units available at fulfillment centers during that time.” On Seller Central, Amazon’s sell-through calculation reads: But, interestingly, it doesn’t use a monthly calculation either. In sell-through, Amazon doesn’t use 365 days to calculate. One of the key metrics Amazon uses is sell-through rate which you are likely more familiar with and why all this may sound like something you’ve heard before. While inventory turnover ratio generally uses 365 days, sell-through rate usually uses smaller increments of time such as a month. However, ITR is not to be confused with your FBA sell-through rate, though they are quite similar in concept. Number of days in a year or other period ÷ Number of times you turned over inventory = Number of days it takes to sell through your entire orderģ65 days ÷ 5 turns = sell-through every 73 daysģ65 days ÷ 10 turns = sell-through every 36.5 days The formula to calculate how often that is can be looked at in this way: ITR Formula Similarly, 10 means you sold through 10 times in the year. This ratio suggests that a company sells and restocks its inventory every 30 to 60 days.Ī ratio of 5 would mean that you sold through and restocked your inventory 5 times that year. A good rule of thumb for most industries is to keep the ITR between 5 and 10.
A ratio of 5 may be too high for discount retailers but too low for car companies.
However, the ideal inventory turnover rate may vary by industry. One turn indicates one batch of inventory you’ve sold and replaced during a particular period.Ī standard industry practice is to calculate ITR based on a 365 day period. Inventory turnover refers to the rate at which you sold out an inventory order over time.
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