The formula and what it actually measures.
Inventory turnover = COGS / average inventory, measured over a 12-month rolling window. Average inventory is usually (opening + closing) / 2, or the average of monthly closing balances for more precision. The result is a multiple — 6 means you sold and replaced your inventory 6 times in the year. Days of inventory = 365 / turnover, so 6 turns = roughly 60 days of stock on hand.
The number tells you how efficiently inventory is being converted to sales. High turnover = stock moves fast, working capital is efficient. Low turnover = stock sits, capital is tied up. But "high" and "low" are entirely industry-dependent — comparing your turnover to a generic target without context produces wrong conclusions.
Industry benchmarks that actually mean something.
Hardware retail and wholesale: 3-5 turns is normal. Items are durable, demand is irregular, customers expect range. 6+ turns means you might be running too lean and missing sales. Supermarket: 12-25 turns. Fast-moving consumer goods, predictable demand, low margin per unit. 8 turns means stale inventory or oversupply. Fashion retail: 4-8 turns at full season cycle, excluding markdowns.
Pharma retail: 6-12 turns. Mix of fast-moving OTC and slower prescription items. Below 4 means dead stock; above 15 might mean stocking only fast-movers and missing range. Auto parts: 2-4 turns. Long-tail catalog with rare-failure items. Food service / restaurant supply: 15-30 turns. High perishable mix forces fast cycling. Use the right benchmark for your category, not a generic "10 is good" claim.
- Hardware: 3-5 turns normal
- Supermarket: 12-25 turns normal
- Fashion: 4-8 turns full season
- Pharma: 6-12 turns normal
- Auto parts: 2-4 turns normal
- Food service: 15-30 turns normal
A worked example: pharmacy chain.
A Leeds pharmacy chain runs GBP 1.8 million in COGS for the year (excludes the markup, which is on top). Average inventory across 8 branches is GBP 240,000. Turnover = 1.8M / 240k = 7.5. Days of inventory = 365 / 7.5 = 49 days. This is squarely within the 6-12 normal range for pharmacy — they are operating efficiently.
Drill down by branch. Branch A has 6 turns (61 days), Branch B has 9 turns (41 days). Same chain, same brands, same operations. The 50% gap suggests Branch A is overstocked or slow, or Branch B is missing range. Investigation: Branch A had a buyer who over-ordered before retiring, leaving 3 months of dead stock. The chain-level turnover hides this — branch-level turnover surfaces it. Always compute turnover at the unit you can act on, not just at the chain level.
Why high turnover is not always good.
A naive interpretation says higher turnover is always better. It is not. Turnover that is significantly above industry benchmark usually indicates one of two problems: chronic stockouts (you sell out and miss demand because stock is too low), or undue narrow range (you only stock fast-movers and lose customers who want choice). Both depress revenue.
A pharmacy with 18 turns might be turning OTC pain meds and antihistamines fast but missing the long-tail prescription items that draw repeat customers. The owner sees efficient working capital and high turnover; the customer sees an empty shelf for the specific drug they needed and goes to a competitor. Turnover at 30% above industry should be investigated, not celebrated.
Why low turnover is not always bad either.
A 2-turn business is not necessarily failing. A specialty hardware distributor that stocks 4,000 SKUs across rare and common items will run lower turnover by design — the rare items are the differentiator that makes customers come for the common ones too. Strip out the rare items and turnover rises, but revenue falls more.
The right move is to segment turnover by ABC class. A items should turn fast (8+ for hardware, 15+ for FMCG). C items can turn slow (2-3 for hardware, 5-6 for FMCG) — that is the cost of carrying range. Aggregate turnover hides the structure. Class-segmented turnover shows whether each segment is performing as expected.
The cash conversion link.
Inventory turnover connects to cash conversion cycle: Days Inventory + Days Receivable - Days Payable = days of working capital tied up in operations. A 60-day inventory cycle plus 30-day receivable minus 45-day payable = 45 days of working capital needed. Reduce inventory days by 10 and you free 10 days of working capital — for a GBP 6 million COGS business, that is roughly GBP 165,000 of cash freed.
This is why inventory turnover matters at the CFO level, not just the operations level. Improving turnover by 1 unit (say from 6 to 7) reduces working capital tied up by roughly 14% (61 days to 52 days). The freed cash funds growth, repays debt, or returns to owners. It is one of the cleanest levers in the P&L.
How nonari computes turnover.
Nonari calculates inventory turnover monthly per branch, per SKU class (A/B/C), and chain-wide. The 12-month rolling COGS / average BranchInventory is computed nightly. Days-of-inventory and benchmarks against your own historic trend are surfaced on the dashboard.
For diagnostic depth, Nonari segments turnover by SKU class — turnover of A items separately, B items, C items. A chain with strong A turnover but failing C turnover knows exactly where to act: prune the long tail. The opposite (failing A turnover, fine C turnover) suggests core product issues — supplier problems, buying errors, demand shifts. The same number, segmented, tells very different stories.