The "Inventory Turnover" Metric: Why It's More Important Than Total Sales

The Cash Trap of High Sales

You're proud of your KSh 1 million monthly sales. But your cash is always tight. Why? Because your inventory is sitting on shelves for months before it sells. You're not generating cash; you're just moving money into stock that doesn't move back. This is a low inventory turnover problem, and it's often hidden behind impressive sales figures.

Inventory turnover measures how many times you sell through your entire stock in a period (usually a year). A high turnover means you're converting stock into cash quickly. A low turnover means cash is trapped.

How to Calculate and Use Inventory Turnover

1. The Formula

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory Value. Your dashboard should calculate this automatically.

2. Know Your Benchmark

For a typical retail shop, a turnover of 6-12 times per year is healthy (selling through stock every 1-2 months). For perishable goods, it should be much higher. A turnover of 2 means it takes 6 months to sell your inventory—that's a problem.

3. Drill Down to Item-Level Turnover

Which items are moving fast and which are slow? The dashboard shows you turnover per product. Fast movers deserve more shelf space and more reorders. Slow movers are tying up cash and should be discounted or dropped.

4. Use Turnover to Make Buying Decisions

Before ordering more stock, check the turnover of that item. If it's slow, don't order more just because you got a "good deal." That deal might be tying up your cash for months.

The Cash Flow Connection

A high inventory turnover means you're generating cash quickly. You can pay suppliers on time, invest in marketing, and grow. A low turnover means you're cash-poor despite high sales. Focus on improving your inventory turnover, and you'll see your cash flow improve dramatically.

Stop celebrating sales volume. Start managing inventory velocity.

Calculate My Inventory Turnover →