Calculate your Turn Rate and plan your inventory for the rest of the year!
Are you asking yourself, “How much inventory should I have on hand right now to make my sales goals?” Well, to fix this problem, you need to know your Turn Rate!
Your greatest source of increased cash flow comes from increasing your Turn Rate.
So where do you start?
It all starts with a good department structure. Do you track your sales and inventory by departments or categories? Good Inventory Management starts with Sales Projections by department or category. The best way to set your goals is to look back on your previous two years of sales and see how each department is trending. Then make your best “guesstimate” of what percent you think each department will be up or down for the coming year.
What is a Turn Rate?
Your Inventory Turn Rate measures how fast your inventory moves out of the store.
How To Calculate Your Turn Rate
In order to calculate your turn rate, you divide your total sales in retail by the average inventory at retail*.
*Hint: You need to know what your turn rate is for each department of your store!
Wait, I don’t know my average inventory!
The Problem is most Independent Retailers have no idea what their average inventory was for the past 12 months, especially by department.
BUT, if you will commit to writing down your Beginning of Month Inventory for each month by department, by 12 months you will have more accurate numbers.
If you don’t have your numbers by department, you can start with your Turn Rate for the entire store.
Not ideal, but it’s a place to start.
Start by totaling up your sales for the store for the last 12 months and dividing it by your inventory at retail right now. That will give you an estimate of what your Turn Rate is for the store. (This number may be lower than usual depending on how long you were closed this year, but it gives you an idea to start with).
I know my Turn Rate… now what?
Once you know your turn rate, you can estimate your Turn Rate by department to know how much inventory you need to have on hand right now.
Calculate your sales for the past 12 months for each department and then divide that department’s sales by the On-Hand Inventory at Retail in that department right now.
It might sound complicated, but if you’re willing to put in the work, I can coach you through setting up your Open to Buy.
Take control of your inventory, don’t let it control you.