Calculating Inventory Velocity For Ecommerce Stores

It’s a delicate balance for online store owners, keeping enough merchandise in stock to meet customer demand but not too much that you’re tying up capital and inventory space. The ability to improve inventory turnover, or velocity, can help you achieve this balance and contribute to the profitability of your ecommerce store.

How To Calculate Inventory Velocity

By calculating your inventory velocity, you can measure and improve how your ecommerce store is controlling and selling merchandise. You can determine velocity by dividing the cost of goods sold by the average inventory for the period you are measuring.

Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory

With all ecommerce store owners have to keep track of, it’s easy to overlook the hidden costs of inventory that’s not turning over, including space, insurance, taxes and capital costs. A regular calculation of inventory turnover can help online retailers focus on reducing overhead costs and improving velocity.

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