Inventory-to-Sales Ratio: A Seller’s Key Metric
Starting an ecommerce business involves many responsibilities, and one of the most essential is tracking your inventory-to-sales ratio. Maintaining a balanced ratio—where your stock matches sales demand without overstocking—can reduce storage costs and boost overall profitability.
What is an inventory-to-sales ratio?
The inventory-to-sales ratio, sometimes called the stock-to-sales ratio, is a metric that compares the amount of inventory you have on hand to the sales being made. A lower ratio typically means you’re efficiently turning over stock to match demand, while a higher ratio may signal overstocking or slow-moving inventory.
Why it matters
Regularly checking your inventory-to-sales ratio helps you understand your business performance and make smarter decisions. If your inventory outweighs sales, it could indicate weak product demand or excess stock. This insight allows you to adjust your inventory strategy, diversify your product offerings, or enhance your marketing to align stock levels with customer demand.
Manage your inventory to keep your business moving
Inventory management involves organizing and maintaining product stock throughout your entire supply chain. Whether you sell electronics or beauty products, a solid inventory strategy can improve operations, satisfy customers, and reduce the risk of financial loss due to poor stock handling.
Why does my inventory-to-sales ratio matter?
Tracking your inventory-to-sales ratio ensures you’re investing just the right amount in stock. If the ratio is too low, it may mean you’re frequently out of stock and missing potential sales. A high ratio, on the other hand, suggests you’re tying up too much capital in inventory and possibly paying extra in storage fees. Monitoring this ratio consistently helps refine your purchasing and sales tactics.
How do I calculate my inventory-to-sales ratio?
To calculate your ratio, choose a time frame—like a month or a quarter—then divide the average value of your inventory by your net sales in that period. For instance, if your inventory is worth $500 and your net sales are $800, your ratio is 0.625. You can calculate inventory value by multiplying units in stock by their cost, and determine net sales by subtracting returns from gross sales.
What’s a healthy inventory-to-sales ratio?
While a ratio between 0.167 and 0.25 is often recommended, what’s ideal for one business might not be for another. It’s more important to track this number consistently over time—ideally for at least three to five years—to understand what ratio supports your specific business model and growth.
What percentage of my sales should go to inventory?
There’s no universal percentage to spend on inventory, but tracking your inventory-to-sales ratio over time will help guide your decisions. If your ratio is unusually high, you’ve likely over-invested in stock. Regular analysis allows you to adjust spending based on your business cycle and customer demand.
How to manage your inventory with Amazon fulfillment
If you sell on Amazon, inventory management can be easier with tools like Fulfillment by Amazon (FBA) and Fulfilled by Merchant (FBM). With FBA, Amazon handles the storage, packing, and shipping, along with customer service. You gain access to inventory management tools that help you stay on top of your ratio and optimize operations.
Fulfilled by Merchant as an inventory management option
Sellers who prefer handling their own fulfillment can use Fulfilled by Merchant. This method offers flexibility in shipping and customer service while giving you control over stock levels. Whether you use it alone or combine it with FBA, FBM offers powerful tools for managing inventory efficiently across various channels.
2 tools to help manage your inventory with FBA
1. FBA Dashboard
The FBA Dashboard provides a snapshot of your business activity, including sales, inventory, orders, and fees. It also shows your Inventory Performance Index (IPI), which scores your inventory health based on excess stock, sell-through rates, stranded inventory, and how often your products are in stock. Combined with your inventory-to-sales ratio, this helps you evaluate and improve inventory efficiency.
2. FBA Inventory Page
The FBA Inventory page lets you track inventory health, manage aging stock, fix issues like stranded inventory, and access reports. You can customize views, apply filters, and take recommended actions to maintain ideal stock levels and reduce excess inventory.
2 Fulfilled by Merchant tools to help manage inventory
1. Manage Inventory Page
This page allows you to view and edit your product listings and track inventory status. You can sort by SKU, product name, or listing status, and manage pricing alongside sales history for better decision-making.
2. Veeqo
Veeqo is a free multichannel shipping and inventory tool that integrates with various platforms. It offers inventory syncing, low stock alerts, sales analytics, forecasting, and automation. You can even track product margins by comparing cost to selling price.
Ready to start optimizing your inventory?
Whether you’re just launching your store or already managing a full catalog, understanding and using the inventory-to-sales ratio can improve decision-making, streamline operations, and maximize profits. Become an Amazon seller today and leverage tools from FBA or Fulfilled by Merchant to stay ahead in the game.
