Inventory turnover is how many times you sell through your average inventory in a period, usually a year. The formula is cost of goods sold divided by average inventory at cost. A higher number means your stock moves faster and your cash isn't sitting on shelves. A very low number usually means you're holding too much, and an unusually high number can mean you're running out of what customers want.
The inventory turnover formula
Inventory turnover = Cost of goods sold ÷ Average inventory at cost
Planning a first collection or new drop? Use the Boutique Inventory Planner to estimate revenue, profit, and overbuying risk before you order.
Open the Boutique Inventory Planner →Average inventory = (Beginning inventory + Ending inventory) ÷ 2
Use cost for both numbers, not retail price. Mixing retail sales with inventory at cost makes your turnover look better than it is. If your inventory swings a lot during the year, averaging monthly inventory values gives a truer picture than just the start and end.
You can also turn it into days: Days of inventory = 365 ÷ Inventory turnover. That tells you roughly how long an item sits before it sells.
A worked example
This is a hypothetical example, not a benchmark.
| Item | Amount |
|---|---|
| Cost of goods sold for the year | $120,000 |
| Inventory at cost, January 1 | $35,000 |
| Inventory at cost, December 31 | $45,000 |
| Average inventory | ($35,000 + $45,000) ÷ 2 = $40,000 |
| Inventory turnover | $120,000 ÷ $40,000 = 3.0 |
| Days of inventory | 365 ÷ 3.0 = about 122 days |
This boutique turned its inventory three times, so an average item sat about four months before selling.
What your number means
There isn't one "right" turnover for every boutique. It depends on what you sell, how you buy and your season. Compare your number to your own past years and between your own categories first. That tells you more than a general average from stores that don't look like yours.
When turnover is too low
- Cash is tied up in stock instead of paying bills or buying new arrivals.
- Older pieces start to look tired, and you end up marking them down.
- Carrying costs add up. See inventory carrying cost.
When turnover is unusually high
- You might be selling out of sizes and styles before customers can buy them.
- Shelves can look thin, which hurts the shopping experience.
- You could be missing sales because you bought too shallow.
High turnover is usually good, but check that you aren't losing sales to empty racks.
Annual vs seasonal turnover
Annual turnover gives you the big picture. Boutiques also buy by season, so it helps to look at each season on its own. A holiday season will usually turn faster than a slow summer month. If one season's number is much lower than the others, look at what you bought for it.
How turnover affects cash flow
Every dollar sitting in unsold stock is a dollar you can't use somewhere else. Faster turnover means you get your money back sooner and can reorder what's selling. That is why turnover and boutique cash flow are so closely linked, and why open-to-buy planning is worth doing.
Look at turnover by category
Your store-wide number can hide problems. Jewelry, basics and gifts often behave very differently from dresses or shoes. Calculate turnover for each category to see where cash is stuck. Pair it with sell-through rate for individual styles and GMROI to see which categories actually earn their space.
What to do next
- Buy shallower and reorder winners instead of buying deep up front.
- Mark down slow sellers sooner. See retail markdown strategy and dead stock.
- Plan purchases with a budget using open-to-buy.
- Check turnover monthly alongside your other boutique KPIs.
- Watch pricing and margin so faster turnover doesn't come from cutting prices too far. Markup vs margin explains the difference.
For all of the formulas in one place, see retail math formulas, and for the bigger system, boutique inventory management.