The Importance of Inventory Turnover

If you are a retail store owner, having inventory stock is inevitable. Depending on the type of your business, this inventory may include finished goods such as pottery or linens, as well as raw materials such as wood or wool. Either way, until you sell or deplete these assets, you cannot generate income. This is why your inventory turnover rate is of crucial importance, as it has a direct impact on your profits and determines your ability to meet the demand for your products.

How to manage your inventory turnover ratio?

Suppose you are unhappy with your inventory turnover ratio. Maybe you think it should be higher, which means you're moving items too slowly, or you've concluded it should be lower, which means you can't keep up with demand. for your products.

To increase your inventory turnover ratio, reconsider your product pricing. Are the prices sufficiently competitive with similar products on the market? See if you can lower prices through a promotion or discount, as long as the price still covers your costs. Find a way to charge a fair price relative to the value of your product, even if that means exploring cheaper suppliers or manufacturers.

If changing your prices or cutting costs isn't an option, then invest in stronger marketing or find ways to revitalize your excess inventory. There's probably a key distinguishing feature that justifies a higher price for your product, whether it's quality of materials or craftsmanship, and perhaps your customers need more awareness of those features. distinctive to buy your products. Another option is to simply reduce the stock of a certain product.

Some companies may encounter the opposite problem: inventory turnover is too high and they want to reduce it. If a customer regularly finds that products are out of stock, they will inevitably feel frustrated. To slow inventory turnover, you can reassess the quantities of inventory you buy at a time. This quantity can be increased to meet your product demand.

It is also possible that your products are not staying on the shelves because they are underpriced compared to those of your competitors. Check if your prices are not too low and if this has an impact on your profitability.

The inventory turnover ratio can tell you at a glance how much you are selling and how fast. Keep an eye on this to maintain the right level of stock on the shelves and keep buyers happy.