Cash flow is the lifeblood of any new business. The best way to grow your cash flow is to sell things fast and for a profit. One way to determine how well you are selling your inventory is to calculate your Inventory Turns.
Here’s the formula: Sales ($) for a given period of time/Average Inventory ($) during that time.
Here’s an example: Sales of $36,000 in 12 months and Average inventory value of $6,000 during that time.
$36,000/$6,000 = 6 turns
Is 6 turns good or bad? That depends on what you are selling. If you sell donuts, 6 turns in a year would be awful. If you sell industrial mining equipment, that might not be too bad.
You’ll have to investigate to determine what is reasonable for your industry and your business.
In general, with an Ebay business, the faster you turn your inventory the better. If you can get your turns to be between 6 and 15 per year, you are doing really well at managing your inventory.
Inventory Turns helps you determine your holding costs for products. If you have products that just aren’t moving, be ready to drop the price to clear it out. You are better off having most of your cash in hand rather than in products that are just sitting on a shelf.
Learn from that deal and move on to the next. Are these products out of season? Is there a better alternative on the market? Did the market price drop below what you were selling for?
There are lots of reasons for inventory to move slowly. Dump it and move on.
Calculate your Inventory turns at least every six months to get a feel for how well you are buying.