What Does It Mean?
The inventory to sales ratio measures the amount of inventory in your store compared to the number of sales you’re fulfilling. The KPI is a broad measure of your store’s inventory management and helps you adjust your stock to maintain high margins.
A eCommerce Sisense Dashboard
Why Does It Matter?
Your inventory is one of the most important things in your store, but it’s also one of your largest expenses. Managing your existing product is a balancing act that can easily go wrong if you’re not making enough sales or if you’re not stocking enough inventory.
Any time you have inventory sitting on your shelves or in your storage room, it’s costing you money. Therefore, you should always be concerned that the total number of sales is as close to equal to your inventory amounts as possible.
How Do You Measure the KPI?
To calculate your inventory to sales ratio, you’ll need your average inventory for the period you’re tracking and your net sales. You can find the latter by subtracting any sales returns from your gross (or total) sales.
To find the inventory to sales ratio, simply divide your average inventory by your net sales. A higher ratio may mean you have strong sales or keep low inventory numbers.
What Sources Would You Use to Measure the KPI?
There are plenty of retail dashboard examples you can take to calculate your inventory to sales ratio. You can use CRM and POS data to obtain your gross sales and return figures to calculate your net sales. Your inventory data can come from your ERP and in-store numbers.
Give Me an Example…
Let’s imagine your store has unusually high costs even though you’re seeing steady sales. Your stock turnover is not changing, and you realize that you have large amounts of unsold inventory on your shelves. Calculating your inventory to sales ratio can tell you where the problem lies. If your ratio is too low, your inventory is not moving and it’s costing you potential sales of other products.
Alternatively, it could mean that your current levels of sales, even if steady, don’t justify the large inventory purchases you’re making. This way, you can find a better balance by seeking a high turnover profit.
What Benchmark/Indicators Should I Use?
- Total sales
- Total returns
- Net sales
- Inventory turnover
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