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On eBay (or any sales channel) inventory turnover indicates how efficiently you're managing your inventory. The calculation is fairly straightforward:
Cost of Goods Sold divided by Average Inventory,
where Average Inventory = (Beginning Inventory + Ending Inventory)/2
You can find an inventory turnover calculator here.
Unfortunately, eBay doesn't publish all the data needed to calculate inventory for the platform as a whole. However, you can track your performance against inventory turnover in the industry and individual retailers. According to Investing.com, inventory turnover for the retail industry for the first quarter of 2020 was 9.12. Amazon's inventory turnover for the same period was 2.35, while Target had a 12-month inventory turnover ratio of 6.5 in January 2020. Wayfair's inventory turnover ratio for the first quarter of 2020 was over 30, indicating the wide range this number can take. For eCommerce businesses, an inventory turnover ratio between 4 and 6 is ideal. This generally indicates that you're restocking items in line with sales.
Brick-and-mortar stores can measure traffic by how many customers they serve and what's in the register. Inventory turns provide critical information to eCommerce businesses.
eCommerce businesses use analytics to determine traffic but rely on inventory turnover to measure the efficiency of their sales, inventory and costs. Inventory turns can help you manage your supply chain and sales and forecast future performance.
High inventory turnover indicates that your eCommerce business sells inventory at a good pace without racking up inventory costs associated with dead stock. This means you're selling your products and replenishing inventory just in time. So, your customers don't have to wait for out-of-stock items — sound perfect, right?
High inventory ratios can hurt your online business under certain scenarios. A very high turnover ratio for eBay products may indicate a problem.
If you have incredibly high sales and replenish inventory as fast as you run out, this could easily lead to out-of-stock situations that leave customers waiting for orders. Some products take weeks to reach your supplier's warehouse, and your customers can simply go to a competitor.
This damages your recent sales history on eBay, causing your search ranking to plummet. It can take a long time to recover from this. When you run promotions where you're deliberately underpricing products, stocking up prevents stockouts and keeps the sales funnel open to the pricier products you want customers to notice.
Low inventory costs you a lot of money. It means you've spent money on products that haven't contributed to your return on investment. If this happens too often, you'll notice increased storage costs and capital tied up in unproductive inventory.
Here are some tips to help keep inventory moving at a healthy pace with eBay sales.
Promotions delete dead stock and increase your sales. Bundling promotional products can perk up your average transaction amount while reducing your inventory costs.
Discounts generate customer goodwill and can draw more traffic to your eBay listings. Word of mouth and social media shares can lead to new relationships and sales growth. Negotiate discounts with your supplier or producer to ensure that you don't eat the total cost.
Buying less stock more often decreases your overall risks if products don't sell. This also reduces inventory costs and storage capacity. For example, buy what you need for the month or quarter rather than the year.
Known as the Pareto principle, the 80/20 rule assumes that 80% of what you sell consists of 20% of your products. Calculating a separate inventory turnover ratio for fast-selling items (the top 20%) gives you a better idea of how much the lower 80% really costs. Then, you can adjust your inventory management strategy accordingly.
It can take some time to determine the healthy inventory turnover for your eBay products, especially with the lack of a total inventory ratio available for the platform as a whole. However, tracking inventory turnover ratios for your various sales channels helps you determine which products are moving quickly from the supplier to your customer's front door. Comparing your eBay, Amazon and other inventory turns also helps you pinpoint which channels are working for your products.
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