What is turnover ratio?
Turnover ratio, sometimes called “inventory turnover,” is a metric that measures how quickly a store sells through its inventory over a given period. A higher ratio means inventory is moving fast; a lower ratio means items are sitting longer.
Why Turnover Ratio Matters
In resale, inventory that sits costs money. Floor space, staff time, and, in the case of store-owned inventory, actual capital are all tied up in items that haven't sold. A low turnover ratio is often a signal that pricing is too high, intake standards need tightening, or your discount schedule isn't moving slow items efficiently.
A high turnover ratio, on the other hand, suggests pricing and intake are well-calibrated. Though if items are moving exceptionally fast across the board, it may also indicate underpricing.
There's no universal target ratio for resale stores. A high-volume thrift store will turn inventory far faster than a luxury consignment store. What matters is that sales cover the store’s operating costs with a healthy margin left over.
How to Calculate Turnover Ratio
The standard formula is:
Turnover Ratio = Cost of Goods Sold ÷ Average Inventory Value
For resale stores using a consignment model, cost of goods sold is typically the store's share of sales after the consignor split, since the store has no acquisition cost on consigned items. For store-owned inventory, it's what the store paid for the goods sold.
Example: A store sells $60,000 worth of goods in a year with cost of goods sold at $36,000. If the store's average inventory value on hand throughout the year is $12,000, the turnover ratio is:
$36,000 ÷ $12,000 = 3.0
That means the store turned over its entire inventory three times during the year—roughly once every four months.
What Affects Turnover Ratio
Pricing
Items priced too high sit; items priced too low sell immediately but hurt margin. The goal is a price that moves inventory within your intended window.
Intake Quality
Accepting weak inventory lowers turnover. Items that are unlikely to sell drag the ratio down and occupy space that better goods could fill.
Discount Schedules
A well-structured discount schedule accelerates turnover by automatically reducing prices on slow-moving items before they become dead stock.
Seasonality
Most resale stores see natural fluctuations in turnover through the year. Tracking ratio by season can give a more accurate picture than an annual average alone.
Category Mix
Some categories turn faster than others. Tracking turnover ratio by category helps identify which parts of the floor are performing and which need attention.
FAQs
What's a good turnover ratio for a resale store?
It varies significantly by store type. A thrift store might turn inventory every few weeks; a luxury consignment store might target two to four turns per year. Establish your own baseline first, then work to improve it.
How is turnover ratio different from sell-through rate?
Sell-through rate measures what percentage of a specific set of inventory sold within a given period. Turnover ratio measures how many times the entire inventory was replaced by sales. Both are useful, but turnover ratio gives a broader view of overall floor health.
Can turnover ratio be too high?
Yes. If inventory is turning very fast across the board, it may be a sign that items are underpriced. Stores should check their fastest-moving categories to make sure they’re not leaving margin on the table.