The fundamental mechanism by which retail stores make a profit is by selling their inventory. After acquiring sizeable goods and arranging them, customers go on to pick products off of the shelves. Stock replenishment follows suit. The speed at which this happens determines the operational efficiency of a store. It is known as inventory turnover. A cloud-based inventory software solution is the best solution for improving turnover.
The faster the acquisition and replenishment occur, the better the prospects of a retail store. A slow inventory turnover indicates discrepancies in management aspects like pricing strategy, demand forecasting, and promotions. Optimizing them affects inventory turnover positively.
The rate at which stores sell goods is not uniformly the same in all businesses. Stores that sell perishables must have a high turnover. And establishments like Jewelry stores can have a low turnover rate yet still maintain a steady and high profit.
In this article, we discuss how you can improve inventory turnover. Before that, we discuss how to calculate it. Let’s get started.
How to calculate inventory turnover
The duration between product acquisition and selling during a given period of time determines inventory turnover. And without a doubt, the goal is to have a high turnover rate. But before deploying enhancement strategies, you need to know your current turnover. The inventory turnover ratio helps you know the precise number that indicates turnover efficiency. Subsequently, it paves the way for better business decision-making.
The formula to calculate the turnover ratio is the cost of goods sold divided by the average inventory during the same period.
The cost of goods sold is the sum of starting inventory value, purchased inventory value minus the closing inventory value. For example, if your starting value is Rs.20,000, the purchased value is Rs. 40,000, and the closing value is Rs.10,000, your COGS is Rs.50,000.
The average inventory is the average of the starting inventory value and the closing inventory value. By taking the same values from the above example, your starting value is Rs. 20,000, and the ending is Rs.10,000 – the average inventory is Rs.15,000.
Using the turnover ratio formula, Rs.50,000 divided by Rs.15,000 is 3.3. That’s how you calculate inventory turnover manually. A retail inventory management software solution can calculate the turnover ratio automatically.
How to improve inventory turnover using an inventory software system
Set reorder points
Running out of stock is detrimental to inventory turnover. It delays replenishment operations, disappoints your customers, and hampers sales. With an inventory management application, you can set reorder points. So when inventory levels fall below a certain level, the software triggers and sends out purchase forms to suppliers automatically. It saves you time, eliminates errors, and improves inventory turnover.
Offer loyalty points
To increase your inventory turnover, you need more customers coming in and purchasing goods from your store. Customers often need an incentive for choosing your store over several other options. An inventory software application lets you offer loyalty points against transactions of specific values. Allowing customers to exchange those loyalty points for products encourages them to purchase more goods from your store.
Forecast/analyze trends
Knowing what products are likely to sell the most and what goods are current best-sellers lets you prioritize stock purchases. With that information, you can focus on purchasing high-selling items and reduce buying dead stock. Retail management applications use AI and ML to analyze and detect inventory trends.
Boost customer engagement
Retail management applications provide analytics about customer purchases. They reveal products customers are likely to buy. Using this information, you can cross-sell and up-sell items. Furthermore, the applications have cutting-edge communication modules. With them, you can send bulk notifications and alerts to customers via in-app, SMS, and e-mail. High customer engagement can lead to higher sales.
Accept multiple payment types
A critical factor that affects customer footfall and purchases is the payment types you accept. Customers have a wide range of payment options, and they may want to use one that they prefer. Options include cash, debit/credit card, and mobile wallets. You can set up various payment gateways in retail management software solutions and begin accepting those payments.
Summing up
A world-class inventory control software app eliminates barriers to your inventory turnover rate. With features to oversee every aspect of your store’s inventory, supply chain, customers, employees, and more, you get many opportunities to optimize store activities for a higher turnover. Get the best cloud-based inventory software system – SmartPOS. It is fast, reliable, secure, and user-friendly. Reach out to us to view a live demo of SmartPOS today.