The Numbers Game: Ratios and Your Shop’s Inventory

JJMFinance

Story by JJMFinance

Published on July 29, 2008 in Seller Handbook

Photo by triciamckellar

Dear Sellers,

A few weeks ago, we started the journey of learning how to listen to the stories that numbers tell in our Etsy shop.  A ratio is the story that two numbers tell when they are together.  We explored a popularity ratio called the heart-to-sale ratio.  This week, we will continue the series by looking at a ratio that tells us a story about the inventory in our shop — called the inventory turnover ratio.

Inventory Turnover Ratio:

Inventory is what you currently have for sale in your shop.  Turnover is related to how long your products stay in your shop.  The inventory turnover ratio tells us a story about the life of our products in our shop.

How to Calculate:

Inventory Turnover Ratio = (Total sales you have made) divided by (The # of products for sale in your shop)

You can find the number of sales you have made by looking on the right sidebar of your shop’s homepage under other items.  You can find how many products are for sale in your shop by looking at the “items for sale” number on the right side of your shop’s homepage under other items.  Find a calculator, and take the first number and divide by the second.  The number you calculated is your inventory turnover ratio.

This number tells you how many times you have sold your inventory.  If your number was 13, this means that you have sold every single item in your shop 13 times or gone through 13 cycles of products.

Fill your number into these sentences to get your interpretation:

I have sold all of the products in my shop _____ times.

I have completed _____ cycles of inventory in my shop.

My inventory has sold out _____ times since I have had my shop open.

Taking This Ratio to the Next Level:

There is one more interesting story that this ratio can tell us.  It is called the “months to sell it all ratio.”

Months to Sell It All Ratio = (# of months your shop has been open) divided by (Inventory Turnover Ratio from above)

This ratio tells you an estimate of about how many months it will take you to sell every piece of your inventory.

Fill this number into the following sentences to get your interpretation:

At my historical pace, I will probably sell every item in my inventory in _____ months.

If I keep selling at the same pace and do not make any new products, I will run out of products to sell in _____ months.

_____ months from now, there is a good chance that I will have sold everything in my shop.


Variables to Consider:

There are quite a few things that could influence the results of your calculations including the following:

* Your shop has a high variability in how many products are for sale (5 one week, 125 the next).
* Your shop has not been in operation a long time
* Your shop offers the same products for sale over and over vs. one of a kind items.
* Other considerations (every shop is different and a number has to be interpreted in light of this—price, market, and external circumstances).

You can get a more accurate result if you use the average number of items for sale in your shop instead of how many items are for sale in your shop right now.

How to Use This Information:

With these numbers in your head, ask yourself the following questions (looking for ways to improve):

1. Is my inventory fast?  Does it stay a long time in my shop or does it end up in my customer’s hands quickly?
2. Are there certain products in my shop that sell faster than others? Why or why not?
3. Do the prices of my items influence their speed of sale?
4. Based on these numbers, do I need to make more products for sale, hold back on production, or look for ways to speed up my sales?

Final Thoughts:

Every Etsy shop is unique and that means that your ratio number is unique to your shop.  Do not let a number make you depressed or overly happy.  Take the story that the ratio gives you and take from it what you can.  If it gets you thinking about ways to improve your shop, you have succeeded!  Until next time…keep crunching numbers!

For more financial philosophy from JJMFinance, check out his previous articles. For more information on numbers in your shop, check out the Art of Pricing series.

Discuss: 83 comments

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  • sofiamasri

    sofiamasri says:

    Thanks for all of this really useful info!

    3 years ago

  • hollylynne

    hollylynne says:

    totally interesting, thanks for sharing this info!

    3 years ago

  • ambermaida

    ambermaida says:

    Thank you for the insight!

    3 years ago

  • lovemaryxoxo

    lovemaryxoxo says:

    I hope to be able to use this info one day :)

    3 years ago

  • MetalheartDesign

    MetalheartDesign says:

    love your articles JJM! thanks for all the great info you share.

    3 years ago

  • bytheway

    bytheway says:

    Thanks, this was very depressing. :( When I take it to the next level, I get years, not months! (It is interesting, though)

    3 years ago

  • bigyellowdog

    bigyellowdog says:

    Such a great article! This is really useful info to have!

    3 years ago

  • earlybirdcreations

    earlybirdcreations says:

    Thanks for this info, very interesting!

    3 years ago

  • artdecadence

    artdecadence says:

    ...ooh aaah...this article makes my head hurt!...too much thinking required...obviously I'm a slacko/mathematically challenged seller!

    3 years ago

  • pollyputsthekettleon

    pollyputsthekettleon says:

    Another awesome and ingsightful article,thanks billions!

    3 years ago

  • raghousenternational

    raghousenternational says:

    This is a really good exercise. I notice that there are certain products in my shop that sell more than others. Even though I want to make so many things and have so many creative ideas, I should take the time to focus on creating more of the top 3 items in my shop that sell the most!

    3 years ago

  • raghousenternational

    raghousenternational says:

    Oh yes! I will do that see what happens to my sales!

    3 years ago

  • CatherinetteRings

    CatherinetteRings says:

    Great Exercise will use !

    3 years ago

  • XOHandworks

    XOHandworks says:

    Hmmm, I'm not sure about the usefulness of this one ... What about the items that expired unsold? Those should also be figured in. How many of your listed items actually sell? "If I keep selling at the same pace and do not make any new products, I will run out of products to sell in _____ months." If I stop listing products, my sales will slow down as my shop becomes less visible. Comparing # of products listed to # of products sold (the buy-through) rate is more useful to me. Do I sell 20, 40, 60 or 80 percent of what I list? I've tracked this for the last 9 weeks and in that time period I sold 25% of what I listed (my new sales were 25% of my new listings).

    3 years ago

  • JJMFinance

    JJMFinance says:

    XOHandworks, If you take how much inventory your shop has in it on average for the calculation you will not have to worry about your expired unsold listings (they will automatically be considered).

    3 years ago

  • XOHandworks

    XOHandworks says:

    Let's say I have 100 items in my shop and 200 sales. 200 divided by 100 = 2, or I've "sold every single item in my shop 2 times." It looks like I've sold two-thirds of my listings (200 of 300). But maybe I have another 300 items that expired and I did not renew them. Now I've only sold one-third of my items (200 of 600).

    3 years ago

  • JJMFinance

    JJMFinance says:

    XOHandworks, It is not a % sold ratio, but a cycle ratio. Usually, shops are not forgoing such a large numerical quantity of renewals. You can add "high quantities of renewed items not relisted" to the list of Variables To Consider listed above in the article. Thanks for taking the time to think about the story your numbers are telling you--I think personal interpretation is the biggest key with ratios! You are a number cruncher! :)

    3 years ago

  • prisma

    prisma says:

    80085 is all I can say. I don't really understand this ratio or how it helps are shop - but thanks for the article, JJM! ♥

    3 years ago

  • Saltygal

    Saltygal says:

    Using number of items to calculate stock turn is not effective. One should use retail dollars (inventory and sales) to calculate stock ( inventory)turn. By using these figures, losses due to markdowns, damages or shrinkage are taken into consideration. In order to do this you need a history of your inventory levels and sales. If you record your total inventory on the first day of each month, then figure your average inventory figure and divide that by your total sales you will get a much more realistic figure. Keeping track of your inventory levels in dollar figures will also come in handy when figuring your taxes. If I've sold a total of 200 items and I have a total of 10 items in my store now, my rate would be 20. However that would only be true if every item sold at my listed price, and my levels remained consistent throughout the year. It won't help me if some have been removed due to lack of sales, or re-listed multiple times, or returned and refunded or marked down. By using dollar figures gathered over time you will get a much truer picture of your stores inventory turn ratio.

    3 years ago

  • allisajacobs

    allisajacobs says:

    Hmmm, all these numbers. At least it's got me thinking about my inventory. Thank you for this article!

    3 years ago

  • nappingcat

    nappingcat says:

    Wow, wish counting my sales and selling out were an issue. Guess I need to do some more promoting...

    3 years ago

  • MyWisteriaCottage

    MyWisteriaCottage says:

    There is an old saying in retail-if you handle it five times, it is costing you not making you money.Although it seems brutile, you have to do what it takes to turn things.And learn from what you sold. Produce more of that item as that is where your unique ability lays.

    3 years ago

  • JudiPaintedit

    JudiPaintedit says:

    Awesome, Awesome, Awesome!!!!!

    2 years ago

  • midnightcoiler

    midnightcoiler says:

    I can see where this would be so useful for many sellers with high item turnover.

    2 years ago

  • graffiti2

    graffiti2 says:

    Too many items in my shop to do this math problem. Maybe I can get JJMFinance to figure it out for me. : )

    2 years ago

  • den10studio

    den10studio says:

    Interesting article. Good questions to ask yourself about your shop.

    2 years ago

  • worksandfinds

    worksandfinds says:

    Great. Thank you.

    2 years ago

  • kimberlykt

    kimberlykt says:

    Interesting info. I am selling one type of product...button rings, and am always looking for help improving my sale quantities

    2 years ago

  • steampunkjunq

    steampunkjunq says:

    Very interesting information. Thank you.

    2 years ago

  • BibbysRocket

    BibbysRocket says:

    Thank you for this series.

    2 years ago

  • vanessamoore

    vanessamoore says:

    So very interesting! Thanks!

    2 years ago

  • kinaloon

    kinaloon says:

    Thanks, great stuff!

    2 years ago

  • RosalindGraceDesigns
  • RomanceCatsAndWhimsy

    RomanceCatsAndWhimsy says:

    Interesting article and makes you think. I've printed the article out. Thank you for sharing the info. :)

    2 years ago

  • PriaVanda

    PriaVanda says:

    Thanks for including this article!

    1 year ago

  • HoneysuckleLane

    HoneysuckleLane says:

    Thanks for digging this up. Looks like there's lots of info to digest.

    1 year ago

  • betsybensen

    betsybensen says:

    Getting me thinking. thanks for this.

    1 year ago

  • stitchuation

    stitchuation says:

    Ack!! Math!!!!

    1 year ago

  • LaimaShop

    LaimaShop says:

    Great info, thank you!

    1 year ago

  • hettimay

    hettimay says:

    You are right, an oldie but a goodie! The " final thoughts " section was my favourite part of the article. I have just reopened selling on etsy & I now feel inspired again. Thankyou.

    1 year ago

  • missusfrenchie

    missusfrenchie says:

    This was totally worth re-posting! Thank you!

    1 year ago

  • Thunder2Designs

    Thunder2Designs says:

    this really helps!!

    1 year ago

  • SmallGoby

    SmallGoby says:

    informative! will keep these numbers in mind ;)

    1 year ago

  • AuntMsCreations

    AuntMsCreations says:

    great information and a lot for consideration- thanks!

    1 year ago

  • HumphreysHandmade

    HumphreysHandmade says:

    This was very interesting... bookmarking this one!

    1 year ago

  • vintagemaison

    vintagemaison says:

    Very informative - I have always suspected it's all to do with numbers...

    1 year ago

  • sgjewelrydesigns

    sgjewelrydesigns says:

    As usual ....great articles and eye opening helpful hints.....keep them coming ! I really appreciate them :):)

    1 year ago

  • vintageriches

    vintageriches says:

    Thank you for this great business info!

    1 year ago

  • amberstudios

    amberstudios says:

    Awesome and ingsightful information! Thanks!!!

    1 year ago

  • AltogetherLeather

    AltogetherLeather says:

    Still very useful info - will run these numbers tonight! Thanks. :)

    1 year ago

  • SketchAway

    SketchAway says:

    i have 23 items and have had 23 sales in 3 months... but i'm not sure what that means..... how does it help me figure whether to add more inventory or market more?

    1 year ago

  • LilahBelleVintage

    LilahBelleVintage says:

    Fantastic information. Thanks!

    1 year ago

  • blueroompottery

    blueroompottery says:

    Thanks Danielle! This is helpful, I kinda was doing it it on my own, but you put it very nicely in perspective. :>)

    1 year ago

  • CakewalkYarns

    CakewalkYarns says:

    Very helpful - I've been trying to estimate how much I should budget for my materials purchases. This is a good tool to help me.

    1 year ago

  • LaNomRahDesigns

    LaNomRahDesigns says:

    Thanks! Great information. Might be worth it to apply to non-etsy sales for us smaller businesses as well, for a more detailed sales analysis.

    1 year ago

  • WiredWhimsy

    WiredWhimsy says:

    Very informative and insightful. Thank you!

    1 year ago

  • EstellineDesigns

    EstellineDesigns says:

    I am a new member and has not sold anything as yet. Thanks for the info, it is very helpful.

    1 year ago

  • ILoveYourStyle

    ILoveYourStyle says:

    This was a goodie. Lots to think about! Thank you.

    1 year ago

  • heathersnow

    heathersnow says:

    Good thoughts! Thanks so much for sharing all the info that you do. I find it so helpful with this journey..

    1 year ago

  • oddballartco

    oddballartco says:

    Great info, thanx! :)

    1 year ago

  • AvaGirlDesigns

    AvaGirlDesigns says:

    I have been in business for a year and still trying to make designs that sell quickly while others just sit in my shop! Just trying to improve all the way around!

    1 year ago

  • ruthmarian

    ruthmarian says:

    Thanks for reposting this blog - I've got work to do! ;)

    1 year ago

  • OxOriginalArtJewelry

    OxOriginalArtJewelry says:

    Very interesting. I've considered these things but seeing the equations makes it more useful. Thanks.

    1 year ago

  • karena52

    karena52 says:

    Newbie here!! Appreciate all the help I can get....thanks for this info.

    1 year ago

  • In2twine

    In2twine says:

    Thank you so much! It seemed so logical once I had read the article but I needed the prod to really analyse my shop. I appreciate the advice!

    1 year ago

  • mudijudi

    mudijudi says:

    Thank you for this great article!

    1 year ago

  • thebeadgirl

    thebeadgirl says:

    again...great tips. i need more inventory. THIS i know!

    1 year ago

  • KlaraCoco

    KlaraCoco says:

    Thank you, this is very helpful!

    1 year ago

  • CBJudith

    CBJudith says:

    I wish someone would tell me what I am doing wrong! Newbie with less than one sale per month. I feel as though my products are definitely NOT in demand! Sigh...!

    1 year ago

  • ElizabethMD

    ElizabethMD says:

    Thank you for the information! Much appreciated.

    1 year ago

  • WhatWeMade

    WhatWeMade says:

    This is good information. Like you said, it is meant to get you thinking.. Hopefully we can work it to bring more activity and sales to our shop. Thanks

    1 year ago

  • swankness

    swankness says:

    Cool, thank you!

    1 year ago

  • LeGift

    LeGift says:

    This is very good to know; it's also nice to know our budget. I am kind of new at Etsy and I am still trying to figure out how to bring more traffic. As I do have a job (for now) during the day, I cannot spend all my days on Social Media.

    1 year ago

  • BendByErika

    BendByErika says:

    Who knew numbers could tell you so much?! thanks!

    1 year ago

  • GemdropsoftheFalls

    GemdropsoftheFalls says:

    That is very discouraging! Will try to forget I even read this! Interesting calculations though, they just don't seem to help me.

    1 year ago

  • beaditsr

    beaditsr says:

    I bought those golden ratio earrings for my daughter....maybe the contain sell out energy

    1 year ago

  • SigalFJewelry

    SigalFJewelry says:

    Wow my wheels are starting to work and calculate... Thanks for a very useful info.

    1 year ago

  • BobiCreations

    BobiCreations says:

    very cool & interesting!

    1 year ago

  • handknitted4you

    handknitted4you says:

    Thanks for the info, I'll have to do the math & see if I can figure out what it means for my shop. I'm a newbie too with 11 sales so far but they seem to have slowed down, not sure why, but I've noticed the slow down to be present in other shops as well.

    1 year ago

  • jguilddesigns

    jguilddesigns says:

    Good insight... thanks!

    1 year ago

  • ThePeachTree

    ThePeachTree says:

    VERY interesting!

    1 year ago

  • bobbinsandbits

    bobbinsandbits says:

    so great! i have a lot to consider!

    1 year ago

  • bobbinsandbits

    bobbinsandbits says:

    so great! i have a lot to consider!

    1 year ago