Measuring Marketing

Chapter 82 Inventory Turnover

Measurement Need

To understand how quickly inventory is being sold (as it is one indicator of the popularity of the product).

Solutioni

Turnover measures how quickly total inventory is sold and refilled during a given period of time. It is calculated as follows:

$\text{Turnover=}\frac{S}{I_a}$

Where

S = sales

Ia = average inventory

Note: Average inventory is usually calculated as the sum of each month’s beginning-of-month inventory figures (12 in all) plus the last end-of-month inventory amount, divided by 13.

Suppose a retailer has twenty outlets and its sales last year were $80 million. The average inventory each month was $8 million. The turnover, then, equals ten, as follows:

$\begin{array}{l}Turnover=\frac{\$80,000,000}{\$8,}\end{array}$