![]() ![]() Lastly, inventory shrinkage is the loss of inventory due to theft, damage, spoilage, or error in a given period a lower shrinkage means better inventory control and security. Understanding what inventory turnover is and the role it plays in business can unveil many. Essentially, it indicates the speed at which a business can sell its inventory. Stockout rate is the percentage of times you run out of stock for a product or category in a given period a lower stockout rate means better inventory availability and higher customer retention. Inventory turnover is a crucial business metric that gauges how many times a company sells and replaces its inventory within a given time frame, typically a fiscal year. Sell-through rate is the percentage of inventory sold in a given period a higher sell-through rate means higher inventory turnover and lower inventory holding costs. Gross margin is the difference between sales revenue and COGS expressed as a percentage of sales revenue a higher gross margin indicates higher profit margins and lower inventory costs. Use the formula Time 365 days/turnover to find the average time to sell your inventory. ![]() Additionally, consider other metrics and indicators that relate to your inventory turnover such as gross margin, sell-through rate, stockout rate, and inventory shrinkage. In this case, our average inventory is (20,000 + 30,000 + 40,000)/3 30,000 a little higher (and more representative of the actual average) than before. In order to measure your inventory turnover performance, track and evaluate your inventory turnover ratio over time and compare it with your targets and benchmarks.
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