They influence how often you order inventory, how many units you order, which products you make a priority, and which products you might discontinue or scale back. Inventory management metrics are indicators that help you monitor inventory and make decisions about your stock.
AVERAGE INVENTORY FORMULA RETAIL HOW TO
Here’s how they work, and how to use them in your business. The way you can do that is by using three simple inventory metrics: inventory turnover ratio, inventory-to-sales ratio, and inventory sell-through rate. You should always want to sell products faster, with the lowest possible inventory on hand, and the lowest possible capital invested in that inventory. It’s a simplistic example, but it illustrates a point. Just by improving the rate at which you move your inventory, you have $15 in profits rather than $8. Now, if you can shorten your cycle times and squeeze four cycles into a year, you will come out with $16 instead. That’s made up of the original $1 you invested, plus $7 in profit. If you can do this three times in a year (typical for an Amazon private label seller), you will fit in one more cycle and end the year with $8. Repeat that cycle, and reinvest your $2 in more inventory, to generate sales of $4. You sell that inventory and make a profit of $1, so now you have $2. Let’s say you start the year with $1 of capital that you take and invest in inventory.
The more times you run this machine, the more profit you generate.
Retail is a money machine where you turn capital into inventory, and inventory into sales. This post is by Fabricio Miranda of Flieber.
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