4/3/2024 0 Comments Increase inventory turns![]() Storing inventory costs money, and cash will stay tied up there until it’s sold. One issue many businesses face – regardless of size – is cash flow issues, which can affect the bottom line. ![]() Having saved an additional amount of money, you’re taking steps towards improving your inventory turnover. Many suppliers are happy to come to an agreement for things such as bulk orders, extended credit options or pre-paid freight. You’re well within your rights to review purchase prices, and ask your supplier for discounts when you’re placing orders. Once you’ve signed the contract with a new supplier, it can be all too easy to auto-renew at the end of each year, without thinking about how much you’re spending. If you are considering changing your pricing structure, you may wish to undertake some market research to see how customers will react. Premium products for instance, won’t perform very well if prices are slashed, because of a perceived reduction in quality.Īlternatively, whilst lower pricing may lead to an initial increase in purchases customers may be reluctant to buy from you again, unless you have a sale. But don’t be tricked into thinking your problem will be solved if you simply reduce them. If your sales are low, it may be because of your pricing. There are multiple marketing channels you’ll want to consider: SEO, PPC, social media, email marketing, PR and so much more.Ĭreate a buzz and see demand for your products rise, which will help to increase your inventory turnover. Plan and execute a well thought out marketing campaign to either drive new customers, or encourage repeat purchases. Develop a Winning Marketing CampaignĬustomers aren’t just going to come to you. We would encourage all businesses to ditch the spreadsheets and invest in cloud-based software, so that you can spend more time optimising your inventory turnover. Plus, human error is eliminated, so you can be sure the figures are correct. You’ll save so much time, as you’re able to access crucial information including how many items you have in stock, how much of it has been assigned to orders, and how much is available to sell. There are many types of cloud inventory management software available for businesses, no matter how small your budget is. Choose the Right SoftwareĪre you still inputting your stock levels on a spreadsheet? That’s the first mistake you’re making. These 8 tips will help you to optimise your business’ inventory turnover, which will have a direct positive impact on your ratio. A low ratio indicates a lack of sales, which means that your revenue is tied up in products, when it could have been better spent elsewhere. When you compare your inventory turnover month on month, you want to see it increase. For instance, a retailer selling perishable foods will have a higher inventory turnover compared to a luxury fashion brand simply because their products won’t last as long. ![]() However, this will vary from industry to industry. You ideally want to have the highest ratio, as that represents strong sales. Once you’ve chosen which option and calculated your ratio, you should compare this against your industry’s average. This calculation in comparison, is considered more reasonable because not only does it use the actual cost of goods that have been sold, it also levels out seasonal fluctuations – for instance, you may find sales increase massively in December in the run up to Christmas, but slump in January. Option Two: Cost of Goods Sold / Average Inventories It can sometimes be distorted by fluctuating sales value, although this doesn’t really implicate your inventory’s actual movement. This is typically used from an outside comparative analysis perspective. Whichever calculation you choose, it’s important you stick to it, so that when you analyse the ratios, calculations are consistent. Inventory turnover measures the number of times that your inventory is sold and replaced in a specified period of time (usually a year). Inventory turnover ratio = cost of goods sold / average inventories Inventory turnover ratio = sales / inventory There are two ways you can calculate this ratio – you may prefer one to the other, depending on your business model. The figure you need to calculate to determine how you can optimise your cash flow and meet your customers’ needs whilst maximising profits, is your inventory turnover ratio. How to Calculate Inventory Turnoverįor most retailers, striking that fine balance can be difficult. At the same time, you don’t want to undersell and then have a lot of revenue tied up in your goods. ![]() Managing your inventory effectively can be a challenge: whilst you want to make the most of your inventory, you don’t want to oversell your stock.
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