As an Amazon seller, you’re in the business of moving inventory. But a staggering 43% of businesses don’t track inventory at all, which leads to cash flow problems, stock-outs, or overstocking.
Because your customers can quickly buy products online through Amazon, your products are moving at light speed through your business. To stay competitive and profitable, you need to understand how inventory and expenses move throughout your operation.
Managed well, your inventory will generate more revenue. But to manage your inventory, you need to master an important metric: your Amazon inventory turnover rate.
What is an Amazon turnover rate?
Your Amazon turnover rate (or turn rate) is a simple ratio that shows how often you sell all of your inventory during a period of time. Usually, it’s over the course of a year, but you can look at your turn rate on a weekly or monthly basis, too.
Amazon turnover rates are calculated as a ratio. For example, you would have a 1:1 ratio (simplified as an Amazon turnover rate of 1) if you had 100 units in stock and sold 100 units.
You can calculate your turn rate with this formula:
cost of goods sold (COGS) / average inventory value
The purpose of your Amazon turnover rate is to show how inventory moves through your business. It’s a metric that Amazon sellers use to test the health of their operation, assessing how well they stock and sell in-demand products.
As an Amazon seller, you’ll want to calculate your inventory turnover rate because:
- You can see how quickly you sell through your inventory on average.
- It allows you to compare your success with competitors in your niche.
- Turnover rate can predict future business performance, which helps with cash forecasting.
If it’s time to improve your Amazon store’s performance, you need to master inventory management by calculating your Amazon turn rate.
What’s the ideal Amazon turn rate?
Like most eCommerce metrics, there’s no magic number for the best Amazon inventory turnover rate. The rate that works for your brand depends on your:
- Product categories or niche
- Product popularity
On average, Amazon sellers should shoot for an inventory turnover rate of 4 to 10. If your rate is in this range, it means you’re managing your inventory well, striking a balance between sales volume and restocking.
And yes, there’s such a thing as having an Amazon turn rate that’s too low or too high:
- Low numbers indicate you’re sitting on inventory, which means your cash is tied up in products that aren’t moving.
- High numbers mean you’re selling a lot, but you’re selling out too quickly and creating a bad buyer experience. Amazon also penalizes sellers that go out of stock too often, so this can jeopardize your position on the platform.
When it comes to your Amazon turnover rate, aim for balance. This ensures that you aren’t storing a lot of unsold inventory that locks up your cash flow. A balanced turn rate also indicates that you aren’t running out of products and can consistently fill buyer demand.
3 ways to fix a low inventory turnover rate
If you have a low inventory turnover rate, don’t worry. Calculating your Amazon turn rate gives you opportunities to identify inefficiencies in your Amazon store. Many factors contribute to your low Amazon turn ratio, so try these three fixes to improve your performance.
1. Reduce costs
Did you know that warehouses charge over $5 per square foot of storage? Those costs add up.
Come up with creative storage solutions or renegotiate your storage terms with your warehouse supplier. Your Amazon turn rate will improve as you reduce the costs of holding on to your inventory.
2. Improve your products
You’ve already poured thousands of dollars into inventory that isn’t selling. That can lead to high storage costs and very low returns. If your products aren’t moving, that usually means there’s a problem with the product itself.
Look at your Amazon reports to see which SKUs have the best margins. Don’t be afraid to drop and liquidate products that just aren’t working. You can always calculate your turnover rate on a per-item basis instead of for your entire Amazon store; that will help you focus on your more profitable SKUs.
3. Offer deals
One of the fastest ways to move inventory is to offer deals. Discounts incentivize shoppers to buy your overstock products, which will improve your Amazon turnover rate. Try offering product bundles, coupon codes, up-sells, and limited-time lightning deals to move inventory faster.
Master your Amazon turn rate
There is no perfect Amazon turnover rate, but you can aim to fall within the ideal 4 to 10 range with your Amazon operation. Just remember that your inventory turn rate is only a number. Use it to check on the health of your business, focusing not on the number itself, but on all of the factors that contribute to it.
Proper inventory management requires constant vigilance, but Amazon moves fast. You need every advantage on your side to increase margins and come out on top.
From product listing to repricing to accounting, AccelerList is here to help you make more sales. Start your free 14-day trial now to see the difference for yourself. Make sure you also try Profit Reprice™ to move inventory faster and increase your turn rate!