Digital marketing term
Inventory Turnover
Inventory Turnover is a financial-operational metric that shows how many times a business's inventory is sold and replenished within a given period.
Detailed explanation
This rate is calculated by dividing the cost of goods sold by average inventory value; a high rate generally indicates products are selling quickly and capital isn't sitting idle in a warehouse for long.
A very low rate can point to overstocking, a demand-forecasting error, or a product-market mismatch; this increases storage costs and hurts cash flow.
When examined at the SKU level, this metric clearly reveals which products are moving slowly and which need to be reordered, enabling more accurate inventory planning.
Frequently asked questions
- Why is inventory turnover important?
- Because it shows how long capital sits in a warehouse, it's a critical indicator for cash flow and inventory planning.
- What does a low inventory turnover rate mean?
- It generally signals overstocking or a demand-forecasting error, meaning products are selling more slowly than expected.
Related terms
Internal links for the topic cluster — read these concepts together.
- SKUSKU is the stock-tracking code a business uses to uniquely identify each product variation, such as color, size, or model, in its inventory.
- AOV (Average Order Value)AOV is an e-commerce metric found by dividing the total revenue from orders in a given period by the number of orders, showing how much customers spend on average per cart.
- Repeat Purchase RateRepeat Purchase Rate measures the share of customers who have previously purchased from a brand at least once and go on to make another purchase within a given period.