Inventory metrics: Sales KPIs
Inventory management sales KPIs tell you how your inventory is moving and how efficiently you’re managing it in relation to sales. Important inventory metrics for sales include:
Inventory Turnover Rate
Inventory turnover rate, also known as the inventory turnover ratio or inventory turn, is a measure of the number of times inventory is sold, used or depleted in a certain period, such as a financial year. This inventory KPI tells you whether you have an appropriate amount of stock on hand compared to how much you’re selling.
You can compare your inventory turnover rate with averages for your industry or historical data for your business. A low inventory turnover rate could signal weak sales or too much inventory, while a higher rate is a sign of strong sales but could also indicate inadequate inventory levels.
Inventory Turnover Rate formula
Inventory turnover rate = cost of goods sold / average inventory value
Days on Hand (DOH)
Days on hand (DOH), also known as the days to sell inventory (DSI) and days inventory outstanding (DIO), shows the average number of days it takes for inventory to turn into sales. The average varies from industry to industry, but generally a lower DOH is preferred, as it indicates optimal inventory management.
Learn more about the days inventory outstanding (DIO) calculation.
Days on Hand (DOH) formula
Days on hand = (average inventory for period / cost of sales for period) x 365
Weeks on Hand (WOH)
Weeks on hand (WOH) shows the average number of weeks it takes for inventory to sell. Like Days on Hand, a lower WOH generally shows efficient inventory management while a higher WOH can signal too much stock or other problems.
Find out more about calculating weeks on hand.
Weeks on Hand (WOH) formula
Weeks on hand = (average inventory for period / cost of sales for period) x 52
Stock to Sales Ratio
The stock to sales ratio measures the amount of stock on hand compared to the number of sales being made. A lower ratio is typically preferred but a higher ratio can sometimes be expected, such as when a business is growing quickly and needs additional inventory on hand to meet growing demand.
Stock to Sales Ratio formula
Stock to sales ratio = $ inventory value / $ sales value
Sell-through Rate
Sell-through rate measures the amount of inventory you’ve sold compared to the inventory you’ve received, usually over a month. It helps determine how efficiently your supply chain is operating.
Sell-through Rate formula
Sell-through rate = (# units sold / # units received) x 100
Backorder Rate
Backorder rate calculates the number of orders that can’t be immediately fulfilled as a percentage of total orders over a certain period. This metric shows how well you are meeting customer demand and keeping products stocked. Generally, a lower backorder rate indicates efficient inventory management.
Backorder Rate formula
Backorder rate = (# delayed orders due to backorders / total # orders placed) x 100
Accuracy of Forecast Demand
Accuracy of forecast demand is a percent of how close the on-hand quantity of inventory is to the forecasted demand. It shows how closely the predicted demand for products matches the actual demand.
Accuracy of Forecast Demand formula
Accuracy of forecast demand = [(actual – forecast) / actual] x 100
Product Sales
Product sales, also known as sales revenue, calculates the income from customer purchases minus any returns or cancelled sales, over a specific period such as a month or year.
Product Sales formula
Product sales = gross sales revenue – sales returns – discounts – allowances
Average Revenue per Unit (ARPU)
Average revenue per unit (ARPU) measures how much revenue you’re generating on average from selling one unit of inventory. It can also be used to measure how much revenue a business is generating per subscriber or user, for subscription-based businesses.
Average Revenue per Unit (ARPU) formula
Average revenue per unit = total revenue for period / average units sold for period
Cost per Unit
Cost per unit calculates how much it costs to produce or buy and deliver a single unit of a product to an end consumer. This metric is particularly useful for businesses that produce or sell large quantities of the same product.
Cost per Unit formula
Cost per unit = (fixed costs + variable costs ) / # units produced
Gross Margin Return on Investment (GMROI)
Gross margin return on investment (GMROI) shows how much revenue is being earned compared to how much is invested in inventory purchases. It can give you a picture of how well you’re able to turn stock into cash, minus the cost of buying inventory.
Gross Margin Return on Investment (GMROI) formula
Gross margin return on investment = gross margin / average inventory cost