Calculate Average Inventory Turns and Time on Shelf

Inventory turnover (turns) and time on shelf are critical metrics for efficient inventory management. These measurements help you understand how quickly products sell, identify slow-moving inventory, and optimize purchasing decisions. PayHelm automatically calculates these metrics and provides flexible reporting to analyze performance across your entire catalog.

Understanding Inventory Turnover Metrics

Inventory Turns (Turnover Ratio)

Inventory turns measure how many times you sell through your average inventory in a given period:

Formula: Inventory Turns = Cost of Goods Sold (COGS) ÷ Average Inventory Value

Or in units: Inventory Turns = Units Sold ÷ Average Units in Stock

Example:
• You sold $100,000 in products (at cost) last quarter
• Your average inventory value was $25,000
• Inventory Turns = $100,000 ÷ $25,000 = 4 turns per quarter (or ~16 turns annually)

Higher turns indicate faster-moving inventory and more efficient capital use. Lower turns suggest overstocking or slow sales.

Time on Shelf (Days of Inventory)

Time on shelf measures the average number of days inventory sits before being sold:

Formula: Days of Inventory = 365 ÷ Annual Inventory Turns

Or more precisely: Days of Inventory = (Average Inventory Value ÷ COGS) × Number of Days in Period

Example:
• If inventory turns 6 times per year
• Days of Inventory = 365 ÷ 6 = ~61 days
• Average product sits on shelf for 61 days before selling

Lower days indicates faster turnover. Higher days suggests slow-moving inventory.

How PayHelm Calculates Turnover Metrics

PayHelm automatically computes inventory turns and time on shelf using:

Data Sources:
• Sales data from your ecommerce platform (units sold, COGS)
• Inventory levels synced daily from your store
• Product costs from your platform or manual entries
• Historical inventory snapshots for average calculations

Calculation Methods:
• Average Inventory: Calculated using daily snapshots (more accurate than beginning + ending ÷ 2)
• COGS: Actual product costs × units sold for the period
• Period Flexibility: Calculate for any date range (monthly, quarterly, annually)

Metrics update automatically as new sales and inventory data syncs (every 1-4 hours).

Viewing Inventory Turns and Time on Shelf

Method 1: Dashboard Inventory Metrics

For a high-level view of inventory efficiency:

1. Navigate to your Dashboard
2. Locate the "Inventory Performance" or "Inventory Efficiency" widget
3. You'll see:
- Overall inventory turnover rate (for selected period) - Average days of inventory - Comparison to previous period - Trend graph showing turns over time
4. Use date selectors to analyze different periods (last 30 days, quarter, year)

This provides quick visibility into overall inventory health.

Method 2: Product-Level Turnover Reports

To see turnover metrics for individual products or categories:

Creating an Inventory Turnover Report:
1. Go to Reports → Create New Report
2. Select "Inventory Turnover" or "Product Velocity" template
3. Choose metrics:
- Inventory Turns (for the selected period) - Days of Inventory (average time on shelf) - Units Sold - Average Inventory Value - Turnover Rate (turns per year, annualized)
4. Group by:
- Individual SKU (see each product's performance) - Category (compare turnover across product types) - Brand/Manufacturer (identify fast vs. slow vendors) - Price Range (analyze turnover by product price tier)
5. Sort by Days of Inventory (high to low) to find slowest-moving items
6. Save or export for inventory planning

Filtering for Actionable Insights:
• Show only products with < 2 annual turns (very slow movers)
• Filter to products with > 100 days on shelf
• Focus on high-value items (> $50 cost) with slow turns
• Analyze fast movers (> 12 annual turns) for reorder prioritization

Method 3: Category and Segment Analysis

Compare turnover across different business segments:

Multi-Dimensional Turnover Analysis:
1. Create a report grouped by Category, then Brand
2. Add metrics: Turns, Days of Inventory, Revenue Contribution
3. Identify patterns:
- Which categories have the fastest/slowest turnover? - Are certain brands consistently slow movers? - Do higher-priced items turn slower (as expected)?
4. Use insights to adjust purchasing strategy by segment

Sales Channel Turnover:
• Group by Sales Channel (Amazon, Shopify, eBay)
• See if inventory turns faster on certain platforms
• Optimize inventory allocation across channels based on velocity

Using Custom Metrics for Advanced Turnover Analysis

Creating Turnover-Specific Metrics

Build custom calculations for your business needs:

1. Navigate to Settings → Custom Metrics
2. Click "Create New Metric"
3. Examples:
- Ideal Days of Inventory = Target days based on product category or lead time - Turnover Efficiency = (Actual Turns ÷ Industry Benchmark) × 100 - Slow Mover Flag = IF(Annual Turns < 4, "Slow", "Normal") - Overstock Value = Inventory Value × (Actual Days - Target Days) ÷ Target Days - Cash Tied Up in Slow Inventory = Average Inventory Value for items with < 3 turns

These custom metrics appear in all reports for consistent analysis.

Inventory Health Score

Create a composite metric combining multiple factors:

Inventory Health Score Formula:
• Fast movers (>8 turns): Score 5
• Moderate (4-8 turns): Score 3
• Slow (2-4 turns): Score 2
• Very slow (<2 turns): Score 1

Apply across your catalog to quickly identify problem inventory.

Interpreting Turnover Results

Industry Benchmarks

Typical annual inventory turns by industry:
• Grocery/Perishables: 15-30+ turns (fast-moving)
• Fashion/Apparel: 4-6 turns (seasonal)
• Electronics: 6-10 turns (moderate)
• Furniture: 3-5 turns (slower)
• Automotive Parts: 4-8 turns
• General Retail: 5-10 turns

Compare your results to your industry to gauge performance.

What Different Turnover Rates Mean

High Turnover (>10 annual turns):
• ✅ Efficient inventory use, less cash tied up
• ✅ Lower storage costs
• ✅ Fresher inventory (less obsolescence risk)
• ⚠️ Risk of stockouts if not managed carefully
• ⚠️ May indicate underinventorying

Low Turnover (<3 annual turns):
• ⚠️ Cash tied up in slow-moving inventory
• ⚠️ Higher storage and carrying costs
• ⚠️ Risk of obsolescence or markdowns
• ✅ Less stockout risk
• ✅ May be appropriate for specialty or high-margin items

Optimal turnover depends on:
• Your industry and product type
• Profit margins (higher margin can justify slower turns)
• Supplier lead times (longer lead times may require lower turns)
• Customer service goals (broader selection may mean some slow movers)

Taking Action Based on Turnover Data

Optimizing Slow-Moving Inventory

For products with low turns (> 120 days on shelf):

1. Reduce Prices: Run promotions or discounts to move inventory faster
2. Bundle Slow Movers: Pair with fast-moving items in product bundles
3. Stop Reordering: Don't purchase more until current stock sells
4. Liquidate: Consider selling to liquidators or discount channels
5. Return to Vendor: If possible, negotiate returns for slow inventory
6. Adjust Product Mix: Discontinue consistently slow items

Preventing Future Slow Inventory:
• Set maximum days of inventory targets (e.g., don't stock > 90 days supply)
• Order smaller quantities of unproven or new products
• Use turnover data to set reorder quantities (faster turns = larger orders)

Leveraging Fast-Moving Inventory

For products with high turns (< 30 days on shelf):

1. Increase Stock Levels: Ensure you're not leaving sales on the table
2. Negotiate Better Terms: Use volume to get better pricing or payment terms
3. Feature Prominently: Highlight in marketing and on website
4. Expand Variety: Add related SKUs or variations of fast movers
5. Secure Supply: Establish backup suppliers for critical fast-movers

Maximizing Profit from Fast Movers:
• Consider increasing prices slightly (if demand allows)
• Ensure adequate inventory to avoid stockouts (lost sales)
• Prioritize reorders to prevent disruption

Exporting Turnover Data

Export to Google Sheets

For inventory planning and buyer analysis:

1. Create your inventory turnover report
2. Click Export → Google Sheets
3. Select export frequency:
- Monthly for inventory reviews - Quarterly for strategic planning - One-time for special analysis
4. Data includes SKU, turns, days of inventory, and all selected metrics

Use exported data to:
• Share with purchasing team for reorder decisions
• Present to management on inventory efficiency
• Build custom forecasting models
• Create product discontinuation lists

CSV Export

For ERP or accounting system integration:

1. Export turnover metrics as CSV
2. Import into inventory management systems
3. Use for financial planning and inventory valuation

Tracking Turnover Trends Over Time

Period-over-Period Comparison

Monitor changes in inventory efficiency:

1. Create a turnover report for current quarter
2. Add comparison to previous quarter
3. Identify:
- Products with declining turns (potential problems) - Products with improving turns (optimizations working) - Seasonal patterns in turnover rates

Trend Analysis

1. Export monthly turnover data for past 12 months
2. Create trend graphs in Google Sheets or Excel
3. Identify:
- Seasonal turnover patterns - Long-term efficiency improvements or declines - Impact of business changes on inventory velocity

Setting Turnover Targets and Alerts

Establishing Target Metrics

1. Go to Settings → Inventory Goals
2. Set targets:
- Overall annual inventory turns goal (e.g., 6 turns) - Category-specific targets (e.g., electronics 8 turns, furniture 4 turns) - Maximum days of inventory (e.g., no product > 120 days)
3. PayHelm will highlight underperforming products in dashboards and reports

Automated Alerts

1. Navigate to Settings → Inventory Alerts
2. Create turnover-based alerts:
- Alert when product falls below X annual turns - Notify when days of inventory exceeds threshold - Flag products that haven't sold in 90+ days
3. Receive notifications via email or in-dashboard alerts
4. Take action immediately to prevent inventory buildup

Multi-Location Turnover Analysis

For businesses with multiple warehouses:

Location-Specific Turnover:
1. Group turnover reports by Location
2. Compare turns across warehouses or stores
3. Identify:
- Which locations have more efficient inventory - Products that turn fast at one location but slow at another - Opportunities to transfer inventory between locations

Optimization Strategies:
• Allocate more inventory of fast movers to high-turnover locations
• Transfer slow-moving items from low-turn to high-turn locations
• Adjust purchasing by location based on local turnover rates

Best Practices for Inventory Turnover Management

Regular Monitoring:
• Review overall turnover monthly
• Analyze product-level turns quarterly
• Set up automated reports for slow-moving inventory (weekly)
• Track trend over time to measure improvement

Balanced Approach:
• Don't maximize turns at the expense of stockouts
• Balance inventory efficiency with customer service levels
• Slower turns may be acceptable for high-margin specialty items
• Consider total profit, not just turnover rate

Continuous Improvement:
• Set annual turnover improvement goals (e.g., increase from 5 to 6 turns)
• Measure impact of inventory initiatives on turnover
• Benchmark against competitors and industry standards
• Celebrate wins and learn from products with improving turns

Data-Driven Purchasing:
• Use turnover to set reorder quantities (fast turns = larger orders)
• Adjust safety stock based on turnover and lead time
• Discontinue products with consistently low turns
• Introduce new products in small quantities until turnover is proven

Troubleshooting

If turnover calculations seem incorrect:
• Verify product costs are accurate in your ecommerce platform
• Check that inventory quantities are syncing properly
• Ensure sales data includes all sales channels
• Confirm date range is set correctly (annual vs. quarterly)

If some products show extremely high or low turns:
• Very high turns may indicate understocking (good problem!)
• Very low turns may indicate overstock, discontinued items, or data issues
• Check for data anomalies (zero inventory values, missing costs)
• Verify the product is active and still being sold

If historical data is missing:
• Turnover requires historical inventory levels (not available before PayHelm connection)
• At minimum, 30 days of data needed for meaningful calculations
• More data = more accurate average inventory values

Next Steps

Once you're tracking inventory turns and time on shelf:
• Set target turnover goals for your business and by category
• Create monthly slow-mover reports and action plans
• Use turnover data to optimize reorder quantities and timing
• Implement automated alerts for products exceeding target days of inventory
• Track turnover trends to measure inventory management improvements
• Share turnover metrics with purchasing and finance teams for alignment